Tax reforms in Latin America and their effect on economic institutions

Fiscal policy in Latin America has taken on a new prominence as a tool of confrontation between governments and the business sector. Several states, ideologically aligned with the São Paulo Forum, have promoted tax reforms that seek to dismantle preferential tax regimes, amid a discourse that blames large companies for the region’s structural inequalities. Honduras, under the administration of Xiomara Castro, is part of this regional trend, which can also be seen in Colombia, Chile, Bolivia, Mexico, and Brazil.

Discourse on fiscal changes and social compensation

In Honduras, the executive branch has promoted the Tax Justice Law as one of the main pillars of its economic agenda. The initiative proposes the elimination of tax exemptions that have historically benefited business sectors, arguing that such privileges have deepened social inequality. Xiomara Castro’s government has accompanied this proposal with a narrative focused on the need for “social reparation,” pointing to business groups as having contributed to the country’s economic backwardness.

This approach is not isolated. In Colombia, President Gustavo Petro has publicly accused business leaders of acting as “tax evaders disguised as investors,” using this argument to justify his own tax reform. Similarly, in Chile, the government of Gabriel Boric has insisted on reforming the corporate tax regime, despite the rejection of economic constitutional proposals in referendums.

Responses and cautions from the business sector

Reactions to these policies from business organizations to regional analysts have been predominantly critical. Some sectors think that instead of addressing fiscal imbalances with technical adjustments, an aggressive tactic is being used that undermines trust in economic institutions. A Honduran business leader cautions that this aggressive approach generates a legally hostile environment, prompting capital withdrawal and halting new investment.

creates an adverse view of the productive sector, which faces accusations of improperly gaining from tax regulations that were often created to encourage investment in sluggish economic environments.

A regional intersection between economic governance and division

The progression of these tax reforms aligns with a time of increasing political division and economic difficulties in Latin America. Regional analysts caution that the fiscal adjustments pushed by these administrations not only alter the government’s revenue framework but might also jeopardize the equilibrium between private investment and governmental involvement. Within this backdrop, the advocacy for “tax fairness” serves, for some individuals, as a means to solidify political influence by undermining economic checks and balances.

Aside from the direct effects on tax revenue or government budgets, the debate highlights a more profound issue: maintaining a system that fosters investment and job creation, or shifting to a taxation model centered on state-driven redistribution, even if it means conflicts with the business community.

Tension between governance and economic stability

Several governments in Latin America are demonstrating a change in their economic role through their fiscal strategies. Although these reforms aim to address long-standing equity issues, their execution with a divisive narrative and without wide agreement threatens democratic governance and the stability of institutions. In this context, the region’s challenge is to achieve equilibrium, enabling responses to social crises while maintaining the growth and employment structures that underpin its economic framework.