Treasury Minister Nicolás Dujovne surprised many at the recent annual Council of the Americas meeting by announcing that the government would be sending a tax reform bill to Congress before the end of the year. This week he confirmed his intention to progress swiftly with the initiative and present a first draft of the bill to President Mauricio Macri, before subsequently meeting with the UIA industrial chamber to discuss the issue. The actual content of the bill remains undisclosed for the time being however and any talk of new taxes for the financial sector or a reduction of the inexplicably perduring “Cheque Tax” remains mere hearsay for the time being. The bill will reportedly reach Congress after the October midterm elections, when the government will hope it can capitalise on a positive result, like the one it secured at the primaries in August.
“We are looking to gradually reduce and eliminate taxes,” he said to a room full of business leaders at the Council of the Americas forum, adding: “We believe that in five years we will reach a similar level of tax pressure as other countries, we must be patient.”
The announcement was unexpected. Government officials had previously said they would begin tackling Argentina’s distorted tributary structure in 2018.
According to the World Economic Forum and its Global Competitiveness Report 2016- 2017, Argentina’s total tax rate is one of the highest in the world, clocking in at above 100 percent of corporate profits. Taxes on salaries and financial transactions both eat away at gains, but turnover tax is the biggest culprit, amounting to 90 percent of corporate profits.
Individuals don’t fare much better, facing a slew of outdated and distorted taxes that blow up consumer prices. A report from the Argentine Institute of Fiscal Analysis in July showed that 44 percent of food prices were attributable, either directly or indirectly, to national, provincial and municipal taxes. VAT (IVA), problematic due to persistently high inflation, clocks in at 21 percent, more than five percent above the world average, but it’s not the only one that blows up prices. Gross Income Tax and Income Tax both play their part as well.
It’s no surprise either that an estimated 5.7 million people in the country, a third of the workforce, are employed under- the-table, with smaller companies simply unable to deal with the tax burden of having their staff on the books. Citizens therefore face the tax burden of a developed economy only to receive dire public services in return. Meanwhile, small and medium-sized companies must sink or swim witha lead weight on their backs.
The government’s tax reform will reportedly focus on the business side of the tax burden. Relief for companies will imply more favourable conditions for investment which will drive the economy and, hopefully, consumption.