Like US, third world has tax cheats; Uruguay thinks it has a system

Government officials here don't know how many people failed to pay taxes last year or how much the tax evasion cost the Uruguayan Treasury. In fact, tax authorities here aren't even sure which individuals and corporations are required to pay taxes each year or how much they owe.

But with help from several foreign institutions, government officials in Uruguay hope to change this situation soon - to the certain dismay of taxpayers.

The Inter-American Development Bank, the West German government, and the Inter-American Center for Tributary Administrators (CIAT) are financing a three-year project that aims to bring order to Uruguay's chaotic tax system.

The program, which began a year ago, calls for the purchase of chairs, desks, adding machines, and computers that Uruguay's revenue-raising department, the DGI, badly needs. The project also calls for new computer programs to put the DGI's records in order and to simplify the complex tax-paying process.

``We want to be able to know who owes taxes and how much,'' says Roberto Copelli, the DGI's director. ``We want to reduce tax evasion.''

Uruguay is hardly alone among third-world countries in having trouble in the mundane but crucial task of collecting taxes.

Governments throughout Latin America, Asia, and Africa have traditionally not concentrated on developing efficient tax systems, apparently figuring that budget shortfalls can be covered by printing money, even though this tends to spark inflation.

Uruguay, for example, has only 180 auditors for the 100,000 individuals and corporations that paid taxes last year. Inflation will be about 70 percent this year. Salaries for public employees in developing countries are almost always so low that the most capable tax accountants and lawyers choose to work for private companies.

Corruption, which is common throughout many third-world governments, also hampers tax collection.

Store owners in neighboring Argentina report that tax inspectors who check their books will almost always reduce their tax liability in return for a bribe.

When authorities in the third world have tried to get tough with tax cheats, they often impose new levies. But this usually creates an unwieldy system that confuses taxpayers and auditors.

If taxes do begin to bite and taxpayers howl, governments often establish a host of tax exemptions that allow accountants and tax lawyers to eliminate their clients' tax liabilities.

``We have too many exemptions, and too many taxes,'' says Juan Garc'ia, an adviser to Uruguay's finance minister.

Bloated government payrolls, woeful public services, and excessive government regulations, which are common in the third world, also encourage tax evasion.

``In the developed world, you see the roads, sewer systems, schools, and hospitals your tax dollars provide,'' a foreign observer says. ``But many people don't want to pay taxes in Uruguay, because they don't see the benefits from their tax dollars. They figure that the money is wasted or goes into some minister's pocket.''

Uruguayans put up with frequent power outages, and telephone lines are so ancient that the system often becomes overloaded during peak hours, making it nearly impossible to complete calls.

The project to modernize Uruguay's tax system is not unique. CIAT, which was founded in 1967 and is headquartered in Panama, has similar programs in Guatemala, Honduras, Cura,cao, El Salvador, and the Dominican Republic, says Paulo dos Santos, who heads the five-member CIAT team in Uruguay.

Altogether, 26 countries, including the United States and Canada, belong to CIAT, Mr. dos Santos says. So far, foreign tax specialists have made slow progress in upgrading Uruguay's tax system.

Hans Fuchs, one of the two West German tax officials brought here, says Uruguayan tax authorities are still learning how to use computers.

``I'm working on a program so that the officials who have the information on how much a taxpayer paid can share this with the officials who know how much the taxpayer should have paid,'' he says.

Mr. Fuchs is also creating a data bank listing each individual and corporate taxpayer's address and previous tax records.

``If a person moves and doesn't tell us, we have no way of making sure they file their return,'' says Horst Hessler, the other West German tax official. ``We can't verify if people give false addresses.''

He adds, ``Like in other underdeveloped countries, most people in Uruguay pay for items with cash. That makes it easy for a company to evade taxes.''

Still, Mr. Copelli, Uruguay's revenue director, is optimistic that the country's tax system will be reformed.

``We currently have the resources only to concentrate on collecting taxes from the country's 3,000 biggest companies,'' he says. ``But I'm confident that by the time the program ends, individuals and small shops will be paying what they owe as well.''