Corporate Tax to Fall in Argentina

Corporate Tax to Fall in Argentina

Last week, Argentina’s Congress passed a massive tax reform aiming to boost the country’s languishing economy and improve its inefficient tax system.
 
With 52 votes in favor and only 15 against, the approved tax bill will provide greater incentives to foreign corporations to invest in the country via a reduced tax burden, which is one of the highest in the world at 35 percent of GDP.
 
Additionally, the hope is to reduce Argentina’s fiscal deficit from 4.2 to 3.2 percent by the end of 2018.
 
Here are some of the bill’s major reforms:
 
  • Corporate tax rates will be reduced from 35 to 25 percent during the next five years;
  • A tax on profits from financial investments will be introduced, including a 15 percent tax on foreign currency-denominated and inflation-linked instruments and a 5 percent levy on peso-denominated debt;
  • A tax exemption for non-residents will be put in place with regards to profits from Lebacs, Argentina’s central bank notes;
  • Dividend distributions will be taxed at 7 percent, followed by an increase to 13 percent for profits starting in January 2020, and;
  • A value-added tax (VAT) of 27 percent will be imposed on offshore digital service providers, such as gambling companies, web hosting firms and mobile app developers, among others.
Argentina’s budget for 2018 estimates a growth of 3.5 percent with 15.7 percent inflation, a significant drop from 2017’s rate of inflation of 24 percent. 

Argentina tax reform
Plenty of Pros and Cons to Argentina’s Tax Reform

Several tax experts, politicians and economists spoke out on Macri administration’s tax bill and its overall ramifications.
 
Cesar Litvin, a CEO of Lisicki, Litvin & Asociados in Buenos Aires, told Bloomberg that this is “the best tax reform of the past 30 years” and, while not fully comprehensive, “it’s a substantial improvement” to what had been previously in place.
 
“Obviously this is going to reduce tax collection, but the way of compensating is with more investment, more economic activity and more employment,” Litvin added.
 
Economist Pablo Tigani doesn’t think this tax reform will lead to the expected results as companies lack the necessary “incentives” to invest in a country facing structural adjustment policies, including low salaries and pensions that lead to reduced consumption.
 
Tigani added that the new law is “regressive” in nature as it benefits those with greater income while “debilitating” the working class.
 
Tax expert Hernán Gilardo agrees and says that the new law “transfers the burden to the common citizen and offers a clear tax discount to companies.”
 
“I’m not sure the Argentina State will have greater revenue from this tax bill. One can touch up all taxes, but if the country continues with this level of public spending, this is a ticking time bomb,” Gilardo concluded.
 
Cristina Fernández de Kirchner, a former President and now Senator with the opposition, stood against the bill, stating that in its current form the tax reform would “[underfund] Anses (National Social Security Administration) in favor of entrepreneurs.”
 
Eduardo Aguilar, a Senator from the Province of Chaco, also opposed the bill.
 
"We are asked to vote for uniform taxes for all of Argentina and this lacks the slightest of common sense: we are asked that employer contributions for a company from Chaco or Salta be the same as those for a company in the capital,” Aguilar said.
 
Argentina’s President Mauricio Macri recently moved to reform the country’s pension plan, sparking outrage among pensioners.
 
As a result, several violent protests sprouted throughout the country, leaving behind dozens of people arrested and hundreds of injuries.
 
Macri’s pension reform will hike the retirement age for both men and women and introduce a new formula to calculate payments, one that is expected to lower the amount received per retiree.
 
All translations from Spanish are the author’s.
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