How the new tax reform that the government will promote to compete with the EU

Ten days after the signing of the Mercosur-European Union agreement and after the meeting last Wednesday in Olivos, during which the presidency summoned the leaders of the main chambers of commerce, the government decided to go ahead with a new tax reform. This is the first that the executive will deal with, in case of reelection, although in the case also has a pension reform – failed in an attempt to approve in 2017- and a modification of the work regime.

Horacio Reyser, secretary of international economic relations and chief negotiator of the EU-Mercosur agreement, said in an interview with The voice of the interior What As the agreement between the two blocks advance, the country should have a tendency to reduce its taxes. For this, the work will be done in "a new long-term tax reform"he said.

He also mentioned the reduction of export duties, an aspect included in the same agreement. As expected The chronicler last Wednesday, Deductions should be reduced at the time of entry into force of the agreement. It's a persistent demand, not only from agricultural producers, but also from industry and services. With the amendment proposed in the agreement, only a few badets will be taxed – there will be five – and with a much lower aliquot than currently in force.

"The agreement imposes limits on export duties and, after the entry into force of this Agreement, we can apply a maximum rate of 14% for soybean complex products destined for the European Union, whereas they are now around 28% ", said Reyser.

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Beyond the retentions, the truth is that For months, the productive sectors have been demanding concrete measures to reduce the tax burden, they consider vital to compete in international markets. In some provinces, the weight of gross income exceeds 85% of the total.

Despite his conviction and that he had promised in 2015 to remove the withholding tax, finally last September the government was forced to reinstate them and extend them to industry and services. The underlying reason is the need to close the tax gap.

Addition and subtraction

According to the official point of view, the strong adjustment of expenditure and the rigidity in achieving the budget objective give the expected results. So, the opportunity to move forward in a new tax reform project is open, which eases the burden on the productive sectors. Reyser said Finance Ministers Nicolas Dujovne and Production and Labor Dante Sica were already working on the lines that this project would have, although the content remains unknown.

After recalling that the agreement with the EU "has a horizon of 10 to 15 years", a period during which certain structural problems will have to be modified, Reyser gave a glimpse of the path the reform might take. "Since much earlier, we will reduce taxes, export duties. We have to work on provincial taxes that can create distortions, " he said.

From the productive sector, they ensure that the tax burden in Argentina is one of the strongest in the world, which hinders the competitiveness during export. A report by the Organization for Economic Cooperation for Development (OECD) reveals – with data from 2017 – that total tax revenue climbs to 30.3% of GDP, below several countries of the European Union. But by adding VAT, payroll taxes and other taxes, the equation changes dramatically.

The problem in Argentina is the addition of VAT, taxes at national, provincial and municipal levels, labor taxes and aliquot levels. For example, Two taxes considered highly distortive have a significant impact on production costssuch as the debt and bank credit tax and gross income billed by the provincial tax authorities.

By case, Gross income is a homage that generates a "waterfall effect". The more links a production process has, the higher the price becomes because IIBB taxes every step of the process.

As part of the December 2017 tax reform (Law 27,430) and the fiscal consensus reached with the provinces,and cap the gross income tax at 5% and put in place a schedule to gradually reduce the rate until 2022.

But the reality is that some provinces that had aliquots lower than the summit first lifted them. It is now time to login. On the horizon, the silhouette of European competitors is already sketched.