289 Case study I: Simplified tax regimes and their impact on social insurance in Uruguay Fernanda Teixeira 1 INTRODUCTION The world struggles with high levels of informality, one of the biggest threats to workers’ fundamental right to social protection. Informal workers, i.e. workers under employment arrangements outside the formal reach of the law or not covered by law in practice, frequently do not have access to contributory social protection schemes (see Chapter 3). Difficulties in meeting complex and expensive administrative procedures, exclusion from legal coverage and insufficient contributory capacity either on the part of the worker or the company are some of the barriers that prevent informal workers from accessing social insurance benefits. As pointed out by the International Labour Organization (ILO), the lack of social insurance protection is one of the main sources of vulnerability for informal workers, as it deprives them of access to health care and income security, especially when they need it most, as in cases of illness, unemployment, maternity and disability (ILO 2019a). Informality is most common among low- and middle-income countries, where micro and small enterprises (MSEs) employ a great share of the economically active population and represent the bulk of the economy (Reeg 2015). Latin America is no different; informality is the ‘way of life’ in the region (Perry et al. 2007), with MSEs representing 95 per cent of firms, employing 47 per cent of the working population and with 60 per cent of MSE workforce informally employed (ILO 2014a, 2015). In order to tackle high levels of informality among MSEs, countries in the region, with few exceptions, 1 have implemented special tax regimes for small taxpayers (own-account workers and small firms), simplifying business and employment formalisation, facilitating the payment of taxes (including social insurance contributions), and diminishing the multiplicity and/or the amount of tax due by the MSEs (Cetrángolo et al. 2014). Nevertheless, there is a ‘difference between formalising small enterprises and formalising employment in these firms’ (ILO 2014a, 3). In other words, there is no guarantee that MSEs that opted for the special taxation regimes have declared their accurate number of workers. Despite the countries’ efforts to bring MSEs into formality, many employees within formalised MSEs may have remained under informal employment arrangements and, therefore, excluded from social insurance schemes. Among Latin American countries, Uruguay, one of the pioneers in introducing special tax regimes that contemplate the financing of the social insurance system, has received much attention due to its significant improvements in informality indicators since 2006, when its simplified tax regime for MSEs was reformulated. Although much has been written about the innovative aspects of Uruguayan tax reform, after more than a decade since its implementa- 1 According to Cetrángolo et al. (2014), only El Salvador and Venezuela have not implemented a simplified tax regime for small taxpayers. Fernanda Teixeira - 9781839109119 Downloaded from Elgar Online at 03/16/2022 08:12:36PM via free access