Tax cuts: what strategies are being adopted around the world

The decrease in the corporate income tax is a trend to encourage investment, but its effects are not immediate; what reforms are frequent in other countries and how is Argentina

Reforms with broad and general effects, such as the reduction of taxes charged to businesses for their profits or persons for their income, to specific provisions, such as the implementation of tax deductions for investments in research and development. development or their possible application of a tax on airline tickets if a certain objective of reducing greenhouse gas emissions is not achieved. Recent years have been dynamic in terms of changing tax systems in different countries, with reforms aimed in large part to attract investment.

Argentina was not outside the group of countries with modifications and, in fact, it is mentioned several times in the latest report of the Organization for Economic Co-operation and Development (OECD) , which badyzes trends and regulations approved in the 36 Member States. in our country, Indonesia and South Africa. This document identifies Argentina, the United States, France and Latvia as the countries with the most important reforms in 2018 (in some cases, like our country, with measures that are gradually being implemented) .

A key problem in this paper is that "accelerated reductions are confirmed" from the corporate tax. This is a point envisioned in the reform approved by the Argentine Congress at the end of 2017, but badysts calling for tax changes at the local level warn that although this issue and others are moving towards the areas where they feel that it is correct to encourage the economy, gradualism, budget cuts, recession and the effects of inflation make that today, there is no visible consequences if the economy is to be stimulated. The theory of the "Laffer Curve", developed by the economist Arthur Laffer, indicates that if taxes fall to a high level, investment and employment are activated and that the Fraud is reduced, with what, at some point, the state will eventually recover more than before.

Of course, nowadays, the badysis of the possibility of tax reduction comes into play, which brings into play the growing challenge of pension systems in the face of an aging population. This reality, more urgent in some parts of the map than others, directs the recommendations towards tax and social security reforms that are neither evaluated nor designed in isolation.

In any case, the consequences of reducing the tax burden are usually not immediate, let alone if the fiscal position is a non-allied factor that pushes, for example, gradualism.

"The waiting period exists," says its tributary Cesar Litvin, CEO of Lisicki, Litvin and Asociados, author of a report badyzing how, in recent decades, several countries have used tax policies as development instruments and achieved their goal. One case in which the emphasis is put is that of Ireland. In the 1980s, the country launched reforms that included, for example, differentiating government contribution levels based on the type of enterprise and its location. A little more than a decade later, it was ruled that it was convenient to unify the schemes, which was done, with a corporate tax rate of 12, 5% (this percentage was 50% before changes). Specific incentives were then added, such as a tax level of 6.25% for benefits obtained by inventions patented in the country or a deduction for investment in research and development.

Over the last two decades, many multinationals have moved to Ireland – Litvin stresses – to cope with tax changes and the opening of their economy. But this has been done gradually and, during the transition, public spending has been tightly adjusted, putting into question the way things are happening and possibly governance itself. "In particular, the adjustment has been concentrated in the public sector, with a reduction in the number of employees and lower salaries for ministers and other officials," said Litvin, who believes in Argentina, unproductive expenditures to be reduced and a high rate of evasion on which to work. According to World Bank data, Ireland has been growing steadily since the 1980s, even though it has experienced two years of recession (2008 and 2009) due to the global financial crisis.

A case of more recent income tax relief is that of the United States. The OECD report called the reform of late 2017 the most comprehensive revision of the system of the last 30 years. The corporate tax rate has dropped from 35% to 21%, with additional measures such as the removal of a minimum tax applicable to certain taxpayers.

There were also changes in the income tax of the population: the highest tax rate was reduced from 39.6% to 37%, and the minimum taxable income increased: the general annual deduction for those who do not have a family member. the fees are US $ 12,000 (in Argentina and in the case of employees without family or other deductions, the amount is US $ 497,924 net). "The minimums in the United States are not so high, but these people have low tax relief on consumption taxes," says Litvin, who adds that in 2018, the northern country recorded the rate of highest growth of its product. the last four years.

According to the OECD report, in the case of personal income tax, in 2017 and 2018, more countries have reduced their income weight than those who have increased . The paper emphasizes, firstly, that this tax is the best tool to make a tax system progressive, but warns, on the other hand, that the rate increase (which has marked a trend in previous periods) can reduce work incentives. , savings and investment.

A case that is contrary to the tax relief measures concerns Greece, which in recent years has been committed to reducing and eliminating its budget deficit.

In Argentina, discounting the amounts to define who and how much they pay depends on the variation of a salary index; for 2019 ongoing, the adjustment was well below inflation, which, in practice, increases, for an equal or even lower income buying power, the effective percentage of the reduction . That is to say that beyond the update, inflation and the inadequacy of rising wages make that pressure is greater. On the other hand, since 2018, Profit has reached the returns of several previously exempt financial investments.

Even with the distortions that have occurred over the years, among the countries included in the OECD report, Argentina is the smallest share of the income tax of natural persons in total collection. It did not reach 10% in 2015 (latest published data), while in Denmark, Australia and the United States. (before the reform), participation exceeded 40%. When social security contributions are added to profits, the contribution of all this to tax resources is, in the case of our country, lower than that of almost all the others badyzed. With respect to corporate tax, Argentina is comparatively moderate.

The other side is the largest share of taxes applied to consumption:
Fiscal overview of Latin America distributed by ECLAC, defines Argentina, Brazil, Bolivia and Venezuela as the countries where the predominance of this type of taxation is the strongest, which affects the distribution of income.

According to the author of the tax Andrés Edelstein, who, as Secretary of Public Revenue, worked in 2017 in preparation for the proposed reform of the official tax law 27 430, which is most mentioned in the world is reducing the corporate tax. And he badyzes: "There comes a time when it is difficult to continue to decline, because it is sometimes necessary to recalibrate", especially because of the challenges posed by the pension and health systems.

The aforementioned law increased corporate profits by 35% to 30% for the current year and by 25% for 2020, while imposing a tax on distributed dividends at the respective rates of 7% and 13%.

The change will leave next year in Argentina and according to the comparisons that allows the report of Litvin, to taxation levels higher than those of countries like the United Kingdom (the rate drops to # 39 to 19%), Ireland and the United States. And that equates (in 2020) to countries like Canada (which reduced the level of 40%), Spain (instead of 30%), China and Greece. And this will be below, for example, Colombia (in 2020, it will be 32% due to the application of a gradual reduction in the rate being executed).

For the local case, however, the effect of rising prices comes into play. Nadar Argañaraz, an economist at Iaraf, felt that the lack of adjustment of inflation for years had led some companies to increase their tax burden without the numbers reflecting the decline in the power to purchase the currency.

Argañaraz considers that when everything that happened in 2018 is integrated because of the tax reform and the fiscal pact of the nation and the provinces, the total tax burden increases. One of the changes concerns employer contributions to social security: a non-taxable salary amount has been established. It will gradually increase until 2022, which is combined with a unification of the rate (which in some cases implies an increase in costs). This measure has an impact on social security financing (although benefits could be paid if a laundering effect and more hiring is done). And this is another problem present in the reforms of some countries (see separate note). "The discussion on tax reform will be very much related to the benefits of the pension system," warns economist Oscar Cetrángolo, professor and researcher at UBA and Conicet.

Argañaraz is putting a magnifying glbad under the spotlight in raising the gross income committed by the provinces. The problem in 2018 was that, when drafting the agreement with the Nation, several jurisdictions were allowed to raise tax levels (they must respect a maximum, but nothing prevents them from raise the rate if it is lower than the commitment). For this year, the load should be reduced.

At the national level, there is no change in the value added tax (VAT) that coincides with an overall trend: "Value-added tax rates have stabilized, but an increase income is expected for better administration and the fight against fraud, "says the OECD document. Between 2008 and 2015, the average rate of the countries in this group went from 17.6% to 19.2%, which is lower than the general local rate of 21%.

A trend in other countries is to come back with differentiated tax levels for certain products. On the other hand, it is the special taxes designed to discourage certain consumption, to encourage others and to punish the pollution of the environment.

Changes and trends

Measures taken by different countries in matters of taxes and contributions to social security

Gains

An OECD report notes that in 2018, changes were accelerated to ease the burden of business; in many countries there was a relief for people

• United States: the aliquot portion invoiced to the companies went from 35% to 21% and a minimum charge was removed; a capital investment deduction system has been put in place. In the case of individuals, minimum income tax values ​​were increased, child tax credits were increased and the maximum rate was reduced from 39.6% to 37%.
• Ireland: the corporate tax rate has been reduced; it reached 50% in the 1980s and now stands at 12.5%; there is a reduced rate regime for the benefits obtained by inventions patented in the country and deductions for investment in research and development. A report by Caesar Litvin, a tributary, highlights that the case proves that the theory of the "Laffer Curve" is met
• Colombia: In 2017, the country defined a reform which, like the Argentine legislation, provided for a progressive system of lowering the corporate tax. The regulation provides for the exemption benefits (micro or small) or reduction (medium and large) of the tax, for a certain time, for investments in conflict areas

VAT and consumption

VAT has not changed much in recent years. there was a tendency to use tax policies to encourage or discourage certain consumption

• China: Among the other tax reforms, the Asian giant has recently reduced the rate of value-added tax, with differential percentages depending on the type of business and the size of the business; Changes were also made to this tax, referring to income from bond investments, to encourage these operations.
• Austria: a reform not yet in force is proposed to lower the VAT rate in various sectors of the economy; as a policy of incentive to protect the environment, the tax burden of bicycles and other electric vehicles as well as energy providers such as biogas and hydrogen is reduced; a large digital corporation tax is included
• United Kingdom: With regard to environmental fiscal policies, the OECD report cites the results of the implementation in that country of a tax on plastic bags; since the homage rendered, in 2015, its use fell by 83%; creating these charges or increasing their rates are measures also taken in other countries, such as South Africa

Social Security

The badysis of 2018 did not reveal a very broad general change; there were mixed changes, with the increase of some contributions and the decrease of others

• Argentina: the tax reform included two changes: the establishment of a tax-free amount for employers' contributions, which would increase over time to 2022 ($ 7003.68 this year) and the progressive unification of the rate applied to employers with Pensions, social work, PAMI and other benefits are financed
• La France: personal contributions for health benefits and unemployment have declined; At the same time, according to the OECD report, a contribution based on all incomes, including capital and pension income, has been increased. And a reduction in employers' contribution was expected, which will replace a tax credit for competitiveness
• Japan: the contribution of the employees to the unemployment fund and the contribution to the pension have slightly decreased; this type of mixed measures (highs and lows) has been produced in other countries, such as Finland, where a competitiveness pact provided for a reduction in the employer's contribution and an increase in responsibilities. employee.