A/HRC/43/45/Add.1 IV. Challenges ahead in guaranteeing the full realization of human rights 18. In addition to the issue of economic diversification, a number of structural constraints in the economic and social model of the Plurinational State of Bolivia pose challenges in guaranteeing the full realization of human rights. A. Lack of progressivity in the tax system 19. The State’s complex and regressive tax structure and system have major implications on the enjoyment of human rights. The main source of tax revenue is indirect taxes, mostly in the form of value added tax (VAT) levied at a rate of 13 per cent. VAT alone brings the largest contribution, accounting for approximately 34 per cent of total tax revenue in 2018.43 As widely demonstrated elsewhere, however, VAT tends to be highly regressive and impose disproportionate tax burdens on households at the lower end of the income distribution.44 In the context of the Plurinational State of Bolivia, a number of studies have found that the indirect taxes offset the positive effects of various cash transfer programmes and in fact contribute to an increase in poverty.45 20. While direct income taxes are generally progressive in their primary impact and play a positive role in promoting redistribution,46 they are not integrated as main elements of the Bolivian tax system. There is effectively no wealth or personal income tax in the State, apart from limited taxes on real estates and cars at a municipal level. A lack of personal income or wealth taxes is surprising, given the philosophical and economic rationale of the 2009 Constitution. Although complementary VAT is nominally categorized as a form of personal income tax, it is far from it, as it levies a flat rate of 13 per cent on wages and interest income, and taxpayers can deduct VAT paid on their purchases.47 The complementary VAT system has not been very effective and has brought very little revenue, as the presentation of fraudulent VAT invoices is reportedly common and it is administratively costly to enforce compliance.48 Complementary VAT contributes approximately 0.8 per cent only to the total tax revenue,49 and “adds little progressivity to the tax system”.50 21. Direct tax bases are extremely narrow. The main forms of direct taxes are hydrocarbons taxes, levied at 32 per cent, and corporate income tax, at a rate of 25 per cent. They account for approximately 13 per cent and 14 per cent of total tax revenue respectively.51 A total of 30 per cent of revenue from hydrocarbons taxes is earmarked for 43 44 45 46 47 48 49 50 51 8 Based on figures provided by the National Tax Service (on file). ECLAC and Oxfam, “Time to tax for inclusive growth” (March 2016), p. 8. See, for example, Sergio G. Villarroel Böhrt, “Tributación y equidad en Bolivia: estadísticas y revisión de estudios cuantitativos”, Friedrich Ebert Stiftung, July 2018; Verónica Paz Arauco and others, “Explaining low redistributive impact in Bolivia”, Public Finance Review, vol. 42, No. 3 (May 2014); and Nora Lustig and others, “The impact of taxes and social spending on inequality and poverty in Argentina, Bolivia, Brazil, Mexico, Peru and Uruguay: an overview”, Society for the Study of Economic Inequality, November 2013, p. 21. See ECLAC and Oxfam, “Time to tax for inclusive growth”. Giorgio Brosio, “Reducing reliance on natural resource revenue and increasing subnational tax autonomy in Bolivia”, IDB Working Paper Series, No. IDB-WP-298 (Washington, D.C., InterAmerican Development Bank, 2012), p. 34. Ibid., p. 35. Figures provided by the National Tax Service (on file). See also Emmanuelle Modica, Sabine Laudage and Michelle Harding, “Domestic revenue mobilisation: a new database on tax levels and structures in 80 countries”, OECD Taxation Working Papers, No. 36 (Paris, Organization for Economic Cooperation and Development, 2018). IMF, Bolivia: Selected Issues, IMF Country Report, No. 07/249 (Washington, D.C., 2007), p. 28. Figures provided by the National Tax Service (on file).