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Argentina’s Caputo Signals Sweeping Tax Reforms Tied to Upcoming Elections
Argentina’s Economy Minister, Luis Caputo, announced plans for significant tax reforms – including reductions, eliminations, and simplifications – but stressed their implementation is contingent on the outcome of upcoming legislative elections. The reforms, unveiled during a speech at the Córdoba Stock Exchange on Wednesday, January 24th, 2024, aim to benefit all sectors of Argentinian society, from the national government to individual citizens.
Caputo indicated the reforms will begin after Sunday’s elections,focusing on a streamlined tax system with lower overall burdens. “Part of it is indeed what is coming, the tax reform, which is going to benefit everyone,” he stated. Specifically, the government recently modified income tax regulations through Law 27,743, reversing a previous system implemented by former Economy Minister Sergio Massa and reinstating the Non-Taxable Minimum (MNI) and deductions.
These changes, aligned with requests from provincial governors, impact employees and retirees, whose earnings are now calculated based on the MNI and deductions updated semi-annually with the Consumer Price Index (CPI). As of July 2023, the income tax threshold for single employees was set at a gross salary of $2,624,280, and $3,453,000 for married individuals with two children.
The Minister also emphasized the potential for increased domestic savings and capital market development as a result of the reforms.”Above all, there will be a vrey obvious, very large incentive for there to be internal savings, for the capital market to develop,” Caputo explained, suggesting that a thriving capital market would reduce the government’s reliance on deficit spending and channel funds into private sector loans.
A key aspect of the proposed reforms centers on addressing the contentious issue of Gross Income tax, a major revenue source for Argentinian provinces. Caputo noted a surprising level of agreement across the political spectrum on the need for change. “I tell you to give us a hand with gross Income. We are all clear about it, we from the state that the check tax and withholdings are the worst and The governors are very clear that gross Income is the worst tax, worse than the other two I named,” he said, acknowledging that it represents up to 80% of provincial income.
Though, resolving the Gross Income issue is elaborate by significant outstanding balances owed to companies. According to a recent survey by the Argentine Industrial Union (UIA), these balances currently total $54 billion, with 57% relating to companies without a physical presence in the relevant jurisdiction. The UIA also found that effective Gross Income rates are around 4% nationally, far exceeding the ideal maximum of 1.5%. Furthermore, over 10% of companies surveyed consider these balances irrecoverable, and 77% have been unsuccessful in obtaining reimbursements.A visual representation of the outstanding Gross Income balances by province would be beneficial here.
Caputo underscored the critical importance of the upcoming elections, stating that they are “more vital than the presidential elections of 2027” due to the potential for a shift in the balance of power among the governors. He also urged Argentinians who do not identify with the Kirchnerist political movement to vote for La Libertad Avanza (LLA) to prevent a reversal of these potential reforms.
President Javier Milei previously announced plans to submit a comprehensive tax reform bill to Congress this year, with technical teams already drafting the legislation. Carlos Guberman, the Secretary of the Treasury, is reportedly leading the effort, with potential input from Liban Kusa, a partner at Bruchou & Funes de Rioja. Kusa was initially considered for the head position at the Federal Governance of Public Revenues (AFIP) but declined to transition from the private sector. The effort also acknowledges the expertise of Florence Misrahi, a former head of the national treasury.
The success of these ambitious tax reforms,Caputo made clear,hinges on securing legislative support and navigating the complex relationship with provincial governors.
