GOLD Report I - UCLG

LATIN AMERICA180United Cities and Local GovernmentsIn the unitarycountries that haveintermediateentities, only a fewtypes of tax revenueare allocated to themiddle level18. In Colombia, in2000 the taxincome from thedepartmentscorresponded to10% of the nationaltotal, 1.8% of theGDP, while that ofthe municipalitiesrose to 15%, 2.7%of the GDP. (JaimeBonet,Descentralizaciónfiscal yDisparidades enIngreso Regional,Banco de laRepública, CEER,Nov. 2004).visibly improved the situation of infrastructure,services and degrees of participation inthe poorer, more remote and rural areas.Bolivia provides a notable example: therehas been a substantial increase in the resourceswhich reach the outlying territories, aswell as in the degree of organization and participationof rural communities.In the countries with a medium degree ofdecentralization there are contradictorysituations, as in Chile. While there arenotable advances in the democratization ofthe municipalities, the intermediate levelcontinues to depend to a great extent onthe central government. Curiously, Chileanlegislation uses the term “regional governments”to refer to the de-concentratedintermediate level, and the expression “localadministration” to refer to the municipalities,even if they possess autonomyand their own resources, and deliver awide range of services.III.2. Income and Taxation Capacity ofIntermediate and Municipal BodiesIn essence, the political autonomy of anysub-national government depends largelyon its financial strength. Self-administeredrevenue comes primarily from local taxes,over which autonomous local governmentsexercise direct control. But in Latin America,restrictions on local taxation powers areone of the main limitations of decentralizationprocesses. In most countries, themunicipalities do not have the power toimpose duties and local taxes. Rather theyhave a high level of dependence on centralfunds transfers, and although the degree ofdependence varies from one country toanother, the overall trend appears to bemoving toward increasing dependency.In the federal countries, most local incomeis derived from fiscal co-participation, althoughimportant revenues are sometimesset aside at the intermediate level.• In Argentina, the provinces receive taxeson income, property, fiscal stamps andvehicles (64%, 14.5%, 7% and 6%, respectively,in 2004).• Brazil has allowed the states to receive thesales tax (Circulation of Goods and ServicesTax - ICMS), which represents 26% ofthe national revenue.• In Mexico, some states receive taxes onpersonal income and from the acquisitionof used cars. Since 2005, local taxes onprofessional services, transfers, and temporaryusufruct of property or businessactivities have been permitted.• República Bolivariana de Venezuela grantsto the states only the tax revenue fromstamps and salt mines.In the unitary countries that have intermediateentities, only a few types of tax revenue areallocated to the middle level. For example, inColombia intermediate entities receive revenuefrom the sale of alcoholic beverages, tobaccoand lottery tickets, plus vehicle registrationfees 18 ; road, highway and harbor taxes in Chile,in Bolivia, departments receive royalties forexploitation of hydrocarbons. In Bolivia, theamount of the income and the system of compensationto departments that do not producehydrocarbons explains the relative importanceof the intermediate-level expenditure.Most countries do not grant municipalities theright to determine taxation. Usually, the intermediategovernments in the federal countries,or the national governments andparliaments in the unitary countries retain theright to approve the respective values formunicipal income laws.With some exceptions, taxation powers aresimilar in federal and unitary country municipalities.The most common taxes are those onproperty, vehicle circulation and economicactivities, including licenses for businessesand industries or income from industry andcommerce. Throughout the region, the mostimportant source of municipal revenue is thetax on property. The exceptions are Argentina,where it is a provincial tax; El Salvador,