Publication: Income Taxation of the Top Earners in Honduras: Linking Personal and Corporate Taxes
Loading...
Date
2025-03-12
ISSN
Published
2025-03-12
Editor(s)
Abstract
This note examines the effective income tax rates of top earners in Honduras, using a novel approach that links personal and corporate income tax data. This comprehensive income measure, achieved through collaboration with the Honduras Tax Authority (SAR), reveals a crucial link between the design of personal and corporate income taxes. The findings indicate that over 50% of total comprehensive income for the top 0.05% of earners comes from undistributed corporate profits, while distributed capital income accounts for less than 15%. The effective tax rate (ETR) for the top 0.01% of earners hovers around 25%, which is relatively flat compared to the significant drop observed in high-income countries. This is attributed to Honduras’s flat corporate income tax rate of 25% aligning with the highest marginal rate for personal income.
Link to Data Set
Citation
“Scot, Thiago; Bachas, Pierre; Cesteros, Santiago; Flores, Tatiana; Oqueli, Gabriel; Espinal Hernandez, Edgardo Enrique; Ponce Nuñez, Wilman Alonso; Canales Licona, Sahira Rocio. 2025. Income Taxation of the Top Earners in Honduras: Linking Personal and Corporate Taxes. Prosperity Insight Series. © World Bank. http://hdl.handle.net/10986/42937 License: CC BY-NC 3.0 IGO.”
Associated URLs
Associated content
Other publications in this report series
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication Offshore Data Leaks and Tax Enforcement in Developing Countries(Washington, DC: World Bank, 2024-05-20)The past decade has witnessed a rapid increase in data leaks from tax havens, spanning from the Luxembourg Leaks to revelations in the Panama and Pandora Papers. While these leaks often prompt political investigations into politicians with offshore accounts and calls from civil society for greater transparency in corporate ownership, they also serve as valuable resources for tax authorities investigating cross-border tax evasion and avoidance. To illustrate this point, this note analyzes three country cases—Ecuador, Honduras, and Senegal—where the authors closely collaborated with national tax administrations. It documents the distribution of offshore company formation across jurisdictions for shareholders and ultimate beneficial owners, as well as the relative prevalence of these countries in the overall dataset published by the International Consortium of Investigative Journalists (ICIJ) in its Offshore Leaks Database (OLD). Finally, policy recommendations are provided for enhancing personal income tax enforcement.Publication Two Decades of Top Income Shares in Honduras(Washington, DC: World Bank, 2024-03-19)This paper presents distributional national accounts for Honduras over 2003–2019, using survey microdata, administrative tax records, and national account aggregates. It assembles comprehensive data on formal income for high-income individuals, including information on corporate shareholders, which allows corporate profits to be assigned to their owners. The estimates suggest a high and persistent inequality in the country: the top 1 percent highest earners received approximately 30 percent of the total income over the period, placing Honduras among the most unequal countries in the world. Undistributed corporate profits are the overwhelming income source at the very top of the distribution, highlighting its importance in the measurement of income inequality. Finally, using a panel of tax records, the paper also documents that not only is inequality persistent, but the same individuals are often observed at the top, suggesting that the observed inequality has deep roots.Publication Targeting in Tax Compliance Interventions(Washington, DC: World Bank, 2022-03-14)Tax authorities often use low-cost communication with taxpayers to encourage voluntary compliance and avoid other costly interventions. This paper reports findings from an experiment with more than 30,000 taxpayers in Honduras, designed to assess how taxpayers with different risk scores respond to a communication intervention. Across several outcomes, the average effect of the intervention on compliance was 0. Contrary to the expectation of experts surveyed, only taxpayers considered to be at low risk of noncompliance increase their filing and reported income. Using rich administrative data and a causal forest algorithm, the paper finds that ex-ante predicted risk and responsiveness to the intervention are negatively correlated. These findings can inform the design of targeted interventions by tax authorities.Publication Globalization and Factor Income Taxation(Washington, DC: World Bank, 2022-03-15)How has globalization affected the relative taxation of labor and capital, and why To address this question, this paper builds and analyzes a new database of effective macroeconomic tax rates covering 150 countries since 1965, constructed by combining national accounts data with government revenue statistics. Four main findings are obtained. (1) The effective tax rates on labor and capital have converged globally since the 1960s, due to a 10 percentage-point increase in labor taxation and a 5 percentage-point decline in capital taxation. (2) The decline in capital taxation is concentrated in high-income countries. By contrast, capital taxation has increased in developing countries since the 1990s, albeit from a low base. (3) Consistently across a variety of research designs, the findings show that the rise in capital taxation in developing countries can be explained by a tax capacity effect of international trade: trade openness leads to a concentration of economic activity in formal corporate structures, where capital taxes are easier to impose. (4) At the same time, international economic integration reduces statutory tax rates, due to increased tax competition. In high-income countries, this negative tax competition effect of trade has dominated, while in developing countries, the positive tax-capacity effect of international trade appears to have prevailed.Publication Firms’ Networks Under Export Exemption Regimes(Washington, DC: World Bank, 2024-05-21)This report uses administrative tax data on firm-to-firm trade in Honduras to evaluate the degree of integration between firms receiving export-oriented tax exemptions and the local economy. We present five stylized facts regarding firms’ trade networks in Honduras and show that, across several dimensions, the networks of firms in export-oriented regimes do not differ from those of other similarly sized firms. Our findings challenge the idea that export-oriented regimes benefit firms with no connections to the local economy.
Users also downloaded
Showing related downloaded files
Publication Zambia Poverty and Equity Assessment 2025(Washington, DC: World Bank, 2025-02-25)Zambia is simultaneously amongst the poorest and the most unequal countries in the world. In 2022, 64.3 percent of the population - about 12.6 million individuals - was living on less than US$2.15 a day. This level is not only the 6th highest in the world but it is also misaligned with the country’s Gross Domestic Product (GDP) per capita level. In four of the five poorer countries, GDP per capita is between one-quarter and one-half of Zambia’s GDP per capita. The remaining country is South Sudan, which is immersed in a protracted fragility and conflict situation. At the same time, consumption inequality is high, even when compared with the sub-group of highly unequal resource-rich countries. In 2022, the Gini index stood at 51.5 - significantly above the World Bank’s newly adopted high-inequality threshold of 40. This places Zambia as the country with the 4th highest inequality in the region and the 6th highest globally. Resource-rich countries with similar or higher inequality have substantially lower poverty levels.Publication Equatorial Guinea Country Economic Memorandum(Washington, DC: World Bank, 2025-03-12)The focus of this Country Economic Memorandum (CEM) is to review key policy and reform options for Equatorial Guinea to build the foundations for renewed, diversified, and more inclusive growth. The CEM thus aims to contribute to the government’s economic development and diversification agendas. The first chapter of the report examines the drivers of past growth, and the country’s asset portfolio, and discusses possible long-term growth trajectories. The second chapter examines fiscal policy as the main instrument for efficient transformation of natural capital into physical and human capital, and outlines the fiscal challenges associated with the reliance on the volatile oil and gas markets. It identifies the key gaps in public financial management, including the challenges posed by climate change and provides reform options for implementing an effective fiscal policy. The third chapter explores the present state of education, health, and social protection and discusses priority options to boost human capital. The fourth chapter then turns to the private sector and the main cross-cutting issues that need to be addressed to encourage higher investment, innovation, and productivity. The final chapter drills down into some key sectors which are likely to play a prominent role in any new growth strategy. These include digitalization in both the public and private sectors, and integration into the world economy through trade and ecotourism.Publication World Bank Annual Report 2024(Washington, DC: World Bank, 2024-10-25)This annual report, which covers the period from July 1, 2023, to June 30, 2024, has been prepared by the Executive Directors of both the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA)—collectively known as the World Bank—in accordance with the respective bylaws of the two institutions. Ajay Banga, President of the World Bank Group and Chairman of the Board of Executive Directors, has submitted this report, together with the accompanying administrative budgets and audited financial statements, to the Board of Governors.Publication FY 2024 Zambia Country Opinion Survey Report(Washington, DC: World Bank, 2025-03-18)The Country Opinion Survey in Zambia assists the World Bank Group (WBG) in better understanding how stakeholders in Zambia perceive the WBG. It provides the WBG with systematic feedback from national and local governments, multilateral/bilateral agencies, media, academia, the private sector, and civil society in Zambia on 1) their views regarding the general environment in Zambia; 2) their overall attitudes toward the WBG in Zambia; 3) overall impressions of the WBG’s effectiveness and results, knowledge work and activities, and communication and information sharing in Zambia; and 4) their perceptions of the WBG’s future role in Zambia.Publication Global Economic Prospects, January 2025(Washington, DC: World Bank, 2025-01-16)Global growth is expected to hold steady at 2.7 percent in 2025-26. However, the global economy appears to be settling at a low growth rate that will be insufficient to foster sustained economic development—with the possibility of further headwinds from heightened policy uncertainty and adverse trade policy shifts, geopolitical tensions, persistent inflation, and climate-related natural disasters. Against this backdrop, emerging market and developing economies are set to enter the second quarter of the twenty-first century with per capita incomes on a trajectory that implies substantially slower catch-up toward advanced-economy living standards than they previously experienced. Without course corrections, most low-income countries are unlikely to graduate to middle-income status by the middle of the century. Policy action at both global and national levels is needed to foster a more favorable external environment, enhance macroeconomic stability, reduce structural constraints, address the effects of climate change, and thus accelerate long-term growth and development.