Uruguay's “single tax” social protection scheme for the self‐employed

• Published date: 01 December 2013
• Author: Veronica AMARANTE,Ivone PERAZZO
• Date: 01 December 2013
• DOI: http://doi.org/10.1111/j.1564-913X.2013.00194.x

International Labour Review, Vol. 152 (2013), No. 3–4

Copyright © The authors 2013

Journal compilation and translation © International Labour Organization 2013

Uruguay’s “single tax” social protection

scheme for the self-employed

Veronica AMARANTE* and Ivone PERAZZO*

Abstract. Extending social security coverage to self-employed workers is a major

challenge in Latin America. In 2007, Uruguay eased the rules applying to its “sin-

gle tax” social security scheme for microenterprises, as a result of which a consid-

erable number of self-employed workers were able to join. The authors analyse

the characteristics and employment conditions of these workers between 2000 and

2010, look at how social security coverage increased as a result of the amended

single tax scheme, and assess the scheme’s potential for incorporating greater

numbers of workers.

In Uruguay, as in the rest of Latin America, increasing attention is being

given to the extension of social protection to self-employed workers, since

they are often excluded from the contribution-based systems originally de-

signed for wage employees (Bertranou and Saravia, 2009). Latin American

countries differ with regard to their social security arrangements for the self-

employed. While social security contributions are optional in Argentina, Bra-

zil, Chile, Costa Rica, Ecuador, Dominican Republic and Uruguay, they are

mandatory in Bolivia, Colombia, El Salvador, Guatemala, Honduras, Mexico,

Nicaragua, Panama, Peru and the Bolivarian Republic of Venezuela.

In Uruguay, legislation passed in 200 7 eased the rules applying to the

2001 “single tax” social protection scheme under which very small enterprises

paid a single tax in lieu of all national taxes (except import taxes) and social

security contributions. Under the new rules, a considerable number of self-

employed workers became eligible to join the scheme. It is therefore useful,

with a view to the formulation of future policies, to look more closely at the

employment situations of self-employed workers, and the extent to which their

*

Institute of Economics, Faculty of Economics and Business Studies, University of Uruguay,

emails: vero@iecon.ccee.edu.uy; ivone@iecon.ccee.edu.uy. This article is an abridged version of the

authors’ Economics Institute Working Paper DT 04/13 prepared by for the Economics Institute,

University of Uruguay. The research was carried out in 2011 in the framework of a cooperation

agreement between the University and the sectoral commission on social security, as a contribu-

tion to the National Dialogue on Social Security.

Responsibility for opinions expressed in signed articles rests solely with their authors, and

publication does not constitute an endorsement by the ILO.

International Labour Review560

social security coverage has improved. We limit our analysis to persons classi-

ed as self-employed, regardless of whether they work informally or contribute

to the social security system. These workers, who accounted for approximately

21 per cent of the country’s employment in 2010, have the lowest levels of in-

come and social protection (Amarante and Arim, 2005; Perazzo, 2008; Lan-

zilotta, 2009). Since self-employed workers constitute a heterogeneous group,

we look at some of the very different situations they face. Our analysis is es-

sentially based on data from the National Household Survey carried out by

the National Statistics Institute, and on information from the National Social

Security Ofce (the “Social Security Bank”).1

Previous labour market research in Uruguay has mostly been gen-

eral, without any focus on the specic situation of self-employed workers

(e.g. Amarante and Arim, 2005 and 2009; Perazzo, 2008 and 2012). One

study, however, has looked more closely at this category of workers, based on

the 2006 National Household Survey (Lanzilotta, 2009). The author nds a

negative correlation between self-employment – especially among workers

“without premises” – and the economic cycle. She highlights the low social

security coverage of self-employed workers and postulates that the reasons

for this are the high degree of seasonality and irregular nature of their work,

together with low income levels, particularly among those without premises.

She adds that the 2007 reform of the single tax scheme improved the social

security coverage of these workers, as shown by statistics collected in 2008.

In this article we present updated data on self-employed workers, and look

more closely at how the amended single tax scheme is performing, now that sev-

eral years have passed since the new rules entered into force. The remainder of

the article is organized into four sections. The rst looks at how self-employment

has evolved over the past ten years, and examines its composition and incomes.

The second section analyses the single tax scheme for the self-employed and

how it has evolved. The third assesses the scheme’s potential for incorporating

more workers, and the fourth section presents our conclusions.

Self-employment in Uruguay

We use the National Statistics Institute’s denition of self-employed workers,

namely “persons who run their own enterprises, do not answer to a boss and do

not employ any paid workers”.2 The Institute distinguishes between those with

no xed capital investment (“without premises/investment”) and those with xed

capital investment (“with premises/investment”), investment being in premises,

1 In order to obtain consistent time series data for the entire period, only data for urban

areas were used.

2 The employment categories used by the National Statistics Institute are the following: (pub-

lic or private) worker or employee; member of a production cooperative; boss employing staff; self-

employed worker with premises/investment; self-employed worker without premises/investment;

unpaid worker. For their denitions, see http://www.ine.gub.uy/biblioteca/ech/ech_princ_denic_

utilizadas.pdf [accessed 10 October 2013].