Amaria F. Valdés, Coordinator of Tax Issues

LATIN AMERICA ADVISOR A DAILY PUBLICATION OF THE DIALOGUE www.thedialogue.org Thursday, March 4, 2021

BOARD OF ADVISORS FEATURED Q&A TODAY’S NEWS Diego Arria Director, Columbus Group POLITICAL Devry Boughner Vorwerk Will Latin America Brazil Reports Chief Corporate Affairs Officer, Grubhub Second Straight Joyce Chang Global Head of Research, Levy New Taxes to Day of Record JPMorgan Chase & Co. Covid Deaths Paula Cifuentes Director of Economic & Fiscal Affairs, Cover Covid Costs? Brazil’s Health Ministry reported Latin America & Canada, 1,910 Covid-19 deaths, a record Philip Morris International total for the second consecutive Marlene Fernández day. Corporate Vice President for Page 2 Government Relations, Arcos Dorados (McDonald’s)

Peter Hakim BUSINESS President Emeritus, Inter-American Dialogue Casino Sued Over Donna Hrinak Senior VP, Corporate Affairs, Beef Linked to Royal Caribbean Group Deforestation Jon E. Huenemann Council Member, Indigenous groups from Brazil and GLG Inc. Colombia filed suit against French James R. Jones retailer Casino over its sales of Chairman, Several countries in the region are debating tax reforms amid the economic downturns brought beef linked to deforestation in the Monarch Global Strategies by the Covid-19 pandemic. // File Photo: Argentine Government. Amazon. Craig A. Kelly Page 2 Senior Director, Americas Int’l Gov’t Relations, Exxon Mobil Economic downturns and gaps between the rich and the poor John Maisto that have been worsened by the Covid-19 pandemic have led POLITICAL Director, U.S. Education Finance Group to debate on tax reform proposals. In Latin America, coun- Press Groups Nicolás Mariscal Q tries including Argentina, Bolivia, Chile and Peru have either Demand Ortega Chairman, Grupo Marhnos implemented or are considering so-called “Robin Hood” taxes, or levies Stop Harassing Thomas F. McLarty III that are raised on high-net-worth individuals. Meanwhile, international Journalists Chairman, advocacy group Oxfam has called for a tax on corporations’ “excess McLarty Associates Press groups demanded that Beatrice Rangel profits” during the coronavirus pandemic, a notion that has caught Nicaraguan President Daniel Director, the attention of policymakers in the region, according to a BBC News Ortega stop harassing journal- AMLA Consulting LLC report. How would such tax hikes affect Latin American countries, and ists. The government has seized Jaana Remes media properties and passed laws Partner, do proponents have the right plans for the revenue’s use? How well have McKinsey Global Institute targeted at people it accuses of Ernesto Revilla wealth taxes worked in the past in Latin America? What is the outlook spreading alarming information. Head of Latin American for corporate tax changes in the region this year, and to what degree will Page 2 Economics, Citi they be temporary or more permanent? Gustavo Roosen Chairman of the Board, Envases Venezolanos Andrés Rozental Maria F. Valdés, coordinator of tax issues at Fried- President, Rozental & rich-Ebert-Stiftung in Colombia: “Latin America will face a Asociados new lost decade due to the Covid emergency. In the midst Shelly Shetty Managing Director, Sovereigns of this situation, all efforts should be made to secure a Fitch Ratings A sustainable recovery that may imply an expansive policy and thus a reduction—not a hike—in taxes. However, most Latin American countries’ debts are reaching unsustainable paths, and a wealth tax or an excess profits tax looks like a good alternative that allows countries to increase tax revenue without compromising low- and middle-class consumption, Ortega // File Photo: Nicaraguan which is necessary for a fast and fair recovery. Many countries are indeed Government. Continued on page 2

POLITICAL NEWS to curb the spread of the novel coronavirus. NEWS BRIEFS Brasília tightened restrictions last weekend, Brazil Reports and Rio de Janeiro’s mayor is expected to take Press Groups Demand similar action soon, O Globo reported. Brazilian Nicaragua’s Ortega Stop Second Consecutive President Jair Bolsonaro, who has downplayed the threat of the virus and is rarely seen wear- Harassing Journalists Day of Record Deaths ing a face mask in public, a basic containment Four press freedom groups, including the measure urged by health authorities around the Committee to Protect Journalists, called Brazil for the second consecutive day on world, criticized the lockdowns on Wednesday. Wednesday on Nicaraguan President Daniel Wednesday reported a record number of “You cannot panic, like resorting once again to Ortega to stop harassing journalists, the deaths from Covid-19 as a more contagious this stay-at-home policy. People are going to Associated Press reported. “News outlets have variant of the novel coronavirus spreads, die of hunger and depression,” he told a group been forced to close and individual journalists Bloomberg News reported. The Health Ministry of supporters, Agence France-Presse report- threatened, harassed, sued, surveilled and reported 1,910 new deaths over the previous ed. A slow vaccine rollout and gatherings for jailed, as dozens more fled the country for their 24 hours, pushing the country’s total number Carnival have added to the spike in infections, own safety,” the CPJ said. Ortega’s government of Covid-19 deaths to 259,271. The number of Bloomberg News reported. Brazil has deployed has seized media properties and passed laws confirmed Covid-19 cases also rose by 71,704 vaccines from China’s Sinovac and Britain’s requiring prison time for people who spread in the previous 24 hours, to 10,718,630. Also AstraZeneca. The government also signed a information online that the government consid- on Wednesday, São Paulo Gov. João Doria deal for 100 million doses of Pfizer’s vaccine, ers alarming. announced the mandatory closure for two Veja reported. weeks of all nonessential businesses, including stores and gyms. The restrictions take effect Saturday and come as more than 75 percent of ECONOMIC NEWS El Salvador Discussing the state’s beds in hospital intensive care units $1.3 Billion Funding were occupied. “We are about to collapse in Package With IMF São Paulo and in Brazil,” Doria told reporters. Brazil’s GDP Shrinks El Salvador is in talks with the International Patients’ hospital stays are also getting longer, 4.1 Percent, Sharpest Monetary Fund for some $1.3 billion in funding, said João Gabbardo, the executive coordinator Finance Minister Alejandro Zelaya told Reuters of São Paulo state’s Covid-19 contingency Drop in Decades in an interview, the wire service reported today. center. Other Brazilian states, including Rio Zelaya said this moment was a “golden oppor- Grande do Sul and Pernambuco, have already Brazil’s economy contracted 4.1 percent last tunity” to revive the economy, following the tightened restrictions on movement in efforts year, its sharpest contraction since 1990, ruling party’s overwhelming win in legislative elections last Sunday. El Salvador is seeking a FEATURED Q&A / Continued from page 1 36-month extended fund facility.

proposing wealth taxes, most of them es in corporate income taxes being heavily seeking to tie the revenue to social programs discussed in the region. We could expect the to fight the social effects of the pandemic, tax rate to either stay the same or decrease, Paraguay Cancels through initiatives such as basic income as has happened in recent decades.” Nonemergency Surgeries schemes. Some countries in the region have long and positive experiences with taxes of Reuven Avi-Yonah, Irwin I. Cohn in Public Hospitals this kind. Colombia, for instance, had its first Professor of Law and director Paraguay has canceled nonemergency sur- wealth tax in 1923, and it has existed almost of the International Tax LLM geries in all public hospitals amid a surge of uninterrupted until today, with a revenue A Program at the University of Covid-19 infections that is overwhelming inten- of more than 1 percent of GDP in its best Michigan: “I think we need to distinguish sive care units, the Health Ministry announced years. The Colombian experience shows between higher taxes on individual rich Wednesday, the Associated Press reported. that permanent wealth taxes are no more people and higher taxes on corporations, in- Resources from canceled surgeries will go avoidable than other taxes and collect fairly cluding an excess profits tax like the Oxfam toward fighting the pandemic, the ministry well. In terms of corporate income taxes, I proposal. Higher taxes on individual rich added. A pneumologist at the National Institute do not see the excess profits tax or increas- people can probably be enforced, although of Respiratory and Environmental Diseases Continued on page 4 told the AP that the country was running out of medical supplies.

COPYRIGHT © 2021, INTER-AMERICAN DIALOGUE PAGE 2 LATIN AMERICA ADVISOR Thursday, March 4, 2021 the country’s statistics institute announced Wednesday, Reuters reported. Despite the THE DIALOGUE CONTINUES sharp drop, the contraction was not as severe as analysts had earlier expected. At the begin- ning of the Covid-19 pandemic nearly a year Who Has the Edge Ahead ago, the World Bank had expected that Latin America’s largest economy would contract 8 of Peru’s Presidential Vote? percent, and the International Monetary Fund Support for Peruvian presiden- Keiko Fujimori, a former congresswoman expected a contraction of 9.1 percent. Stimulus tial candidate George Forsyth and daughter of former President Alberto Fu- programs helped to cushion the impact of the dropped nearly six percentage jimori; and Rafael López Aliaga, a conserva- pandemic, analysts said. “We had a big fall (in Q points over the past month amid tive businessman and admirer of Trump and activity) last year, but with the emergency aid, it controversy regarding the validity of his Bolsonaro. The scenario could become even was much smaller than originally predicted. It candidacy, and candidate Yonhy Lescano more complicated if the National Jury of could have been much worse ... but the public gained traction, La Tercera reported in Elections decides to withdraw either Forsyth finances are now very fragile,” Alexandre Almei- February, citing recent polls. How is Peru’s or López Aliaga from the race. Both are ac- da, an economist at CM Capital in São Paulo, presidential election shaping up, and who cused of having violated strict Peruvian law. told Reuters. President Jair Bolsonaro said are the candidates to watch? What are Both of them were removed from the race, a last month that the government was preparing the most important factors driving voter move that each of them appealed to a higher a new round of cash transfers to millions of support? To what extent are recent political court. The court’s decision must be made by poor and vulnerable Brazilians. He added that crises, including lawmakers’ controversial March 11. Forsyth’s withdrawal could favor any new stimulus measures would address ouster of former President Martín Vizcarra Lescano, and López Aliaga’s withdrawal investors’ concerns about the government’s last November, and a highly fragmented could favor Fujimori. The next president of finances. “Fiscal stimulus, the emergency Congress playing a role in the race? Peru will be the one who reaches the runoff voucher and measures to promote liquidity with the lowest disapproval rating. For now, were crucial to cushion the blow to the Brazil- Alfredo Torres, president of that’s Lescano and Forsyth, and Fujimori has ian economy in 2020,” Welber Barral, senior Ipsos Perú: “The outcome of Pe- the highest disapproval. The only sure thing consultant at BMJ Consultores Associados and ru’s elections is more uncertain about the next Peruvian election is that a a former Brazilian foreign trade secretary, told than ever. According to the most very fragmented Congress will be elected. the Advisor in a Q&A published Feb. 11. “At this A recent polls, there are five candidates with Most likely, seven or eight political parties moment, however, another fiscal stimulus will support of between 7 percent and 12 per- will reach representation, and none will have not have the same effect, and it would have cent, and the most likely result of the April a majority. The next president will have to negative consequences in the medium term,” 11 election is that the election will go to a form alliances with at least two parties in he added. Brazil’s contraction last year was not runoff. At the moment, the favorite is Yonhy addition to his or her own to ensure govern- as bad as other major economies in the region. Lescano, an experienced congressman from ability.” Argentina’s economy shrank 10 percent last the center-left section of the Acción Popular year, while Mexico’s contracted 8.5 percent, the party, which was founded by former Presi- Financial Times reported. dent Fernando Belaúnde. The other eligible EDITOR’S NOTE: The comment above is candidates are George Forsyth, a former a continuation of the Q&A published in soccer player and center-right mayor; Veróni- Wednesday’s issue of the Advisor. BUSINESS NEWS ka Mendoza, a sociologist from Cuzco and admirer of Fidel Castro and Hugo Chávez; Casino Sued Over involved in the lawsuit said, Reuters reported. pliers are responsible for clearing areas of at Beef Sales Linked Casino controls Brazil’s largest food retailer, least 50,000 hectares of forest. “The demand Grupo Pão de Açúcar, or GPA, as well as Co- for beef by Casino and Pão de Açúcar brings to Deforestation lombian retailer Almacenes Éxito. The compa- deforestation and land grabbing and violence,” ny says it has actively combated deforestation said Luis Eloy Terena, a member of COAIB, an Indigenous peoples from Brazil and Colombia by cattle ranchers in both countries, but the organization coordinating Indigenous groups in on Wednesday filed suit against retailer Casino lawsuit claims Casino regularly bought beef the Brazilian Amazon, Reuters reported. Brazil in a French court over the company’s sales of from three slaughterhouses that sourced cattle has been trying to involve the private sector in beef linked to land grabbing and deforesta- from about 600 suppliers linked to deforesta- protection of the Amazon. [Editor’s note: See tion in the Amazon rain forest, campaigners tion. The Indigenous groups allege those sup- related Q&A in the Feb. 24 Advisor.]

FEATURED Q&A / Continued from page 2 LATIN AMERICA ADVISOR is published every business day by the Inter-American Dialogue ISSN 2163-7962 Latin American countries have a poor record Vicente Albornoz, dean of of enforcing them against capital flight, es- business and economics at the Erik Brand pecially to the United States. Importantly, the Universidad de Las Américas in Publisher [email protected] fact that the United States has not agreed Quito: “Robin Hood is a poorly A Gene Kuleta to cooperate with the OECD’s automatic understood character. He may just be a Editor exchange of information means that it would legend, but according to folklore, his main [email protected] still be difficult for Latin American countries purpose was not to rob the rich and give to Anastasia Chacón González to prevent rich individuals from investing the poor, but rather to rob the government Reporter & Associate Editor in the United States via tax havens. One to give it back to taxpayers. Just remember [email protected] would hope that the Biden administration that the Sheriff of Nottingham was the tax Diana Roy collector of Prince John, a cruel ruler who Editorial Intern used to finance his lavish lifestyle with the [email protected] Higher taxes on indi- proceeds of an abusive tax policy. Many vidual rich people can Latin Americans, especially the formal-sec- probably be enforced, tor, tax-paying type of Latin Americans, may Michael Shifter, President although Latin Amer- wish for some sort of punishment for gov- Rebecca Bill Chavez, Nonresident Senior Fellow ican countries have a ernment officials who are unable to optimize Bruno Binetti, Nonresident Fellow poor record of en- public expenditures and who have created a Sergio Bitar, Nonresident Senior Fellow forcing them against system prone to corruption, one that ends up Joan Caivano, Senior Advisor Michael Camilleri, Director, Rule of Law Program capital flight...” financing lavish lifestyles of corrupt bureau- crats. A well-understood anti-tax-collector Kevin Casas-Zamora, Nonresident Senior Fellow — Reuven Avi-Yonah Robin Hood may sound desirable. The main Julia Dias Leite, Nonresident Senior Fellow problem in many Latin American countries is Ariel Fiszbein, Director, Education Program do more than previous U.S. administrations that the brunt of tax collection comes from Sandra García Jaramillo, Nonresident Senior Fellow Selina Ho, Nonresident Senior Fellow to ensure that data collected, for example a small and shrinking formal sector that is Edison Lanza, Nonresident Senior Fellow under the new U.S. corporate transparency overburdened with taxes and regulations Nora Lustig, Nonresident Senior Fellow act (which reveals the true owners of assets while the economy on average pays too few Margaret Myers, Director, Asia Program such as real estate in the United States), be taxes. All this creates an adverse scenario Manuel Orozco, Senior Fellow shared with Latin American countries under for revenue-enhancing tax reforms and has Xiaoyu Pu, Nonresident Senior Fellow intergovernmental agreements negotiated also created a fertile ground for extremist Jeffrey Puryear, Senior Fellow during the Obama administration. However, small-government ideologies. Additional Tamar Solnik, Director, Finance & Administration higher corporate taxes are difficult given that taxes on corporations will only discourage Lisa Viscidi, Director, Energy Program Latin America is not home to many large formal investment and drive more and more Denisse Yanovich, Director of Development multinationals, and source-based taxation of investors into the murky informal sector, multinationals is difficult under conditions of destroying formal jobs and creating more Latin America Advisor is published every tax competition. Still, India has shown that a underpaid, noninsured and tax-evading jobs business day, except for major U.S. holidays, by the Inter-American Dialogue at large developing country can effectively tax in the informal sector.” 1155 15th Street NW, Suite 800 foreign multinationals that wish to access Washington, DC 20005 its market, and a large country such as Brazil The Advisor welcomes comments on its Q&A www.thedialogue.org can do the same.” section. Readers can write editor Gene Kuleta Subscription inquiries are welcomed at [email protected] at [email protected]. The opinions expressed by the members of the Board of Advisors and by guest commentators do not necessarily represent those of the publisher. The analysis is the sole view of each commentator and does not necessarily represent the views of their respective employers or firms. 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