Interview: César Litvin
How do you expect the country’s fiscal reform to affect business competitiveness?
CÉSAR LITVIN: The tax reform approved at the end of 2017 constitutes the most important of its kind in the past 30 years, and with over 300 articles, its coverage is extensive. However, we cannot say that this marks a turning point for competitiveness, as its provisions are too gradual for the private sector. The priority is to attract investment, create jobs and promote consumption in order to achieve greater economic development. The reforms provide a necessary starting point, yet they are insufficient on their own. We also need to continue lowering the overall tax pressure and eliminating fiscal distortions, which have only been increasing in the last decades, leaving aside equity, efficiency and all other aspects that define a good tax system.
The three most important taxes are income tax, taxes on credit and debit banking, and export retentions. With the current tax reform, taxes on gross income are reduced or eliminated in primary, industrial and other minor activities. However, the reduction or elimination of taxes on credit and debit banking has limited the financial sector’s proper development. Moreover, export retentions have made our agricultural and mining products much more expensive on the international market. These three issues have affected competitiveness and discouraged the creation of new businesses. By 2022 the fiscal reform is expected to lower tax revenue by 1.5% of GDP per year at a national level and by 2.5% in the provinces, reaching a total of 4% of GDP. Argentina’s tax pressure would then be at around 30% of GDP, which is below the OECD average and close to the Latin American average of 26%.
What have been the main consequences of the country’s fiscal repatriation policy?
LITVIN: Governments all over the world are seeking to limit the ability of companies to move their activities to countries with low taxation, and Argentina is also moving in this direction. The fiscal repatriation programme carried out in 2017 was a resounding success, with $117bn recovered. As a result of the expansion of the tax base and the uncovering of previously unknown assets, the tax revenue for 2018 is exceeding expectations. The programme also provides three years of exemption on personal asset taxes for those who have always complied with their duties. As a result, 300,000 taxpayers have benefitted from the exemption.
How is the government collaborating at a national and regional level to reduce taxes?
LITVIN: Argentina has a system of fiscal federalism. The nation, provinces and municipalities have the power to collect taxes and spend accordingly. The most important tax for the provinces is the gross income tax, which represents 75% of their income, which is why it is so difficult to eliminate. In 2002 it represented 1.7% of GDP, but by 2016 this had increased to 4.1%. This tax system makes necessary fiscal consensus, whereby the country’s national and regional administrations agree that the former provides more resources to the latter. In exchange, the regions must commit to reduce gross income taxes from primary and industrial activities, and immediately return positive balances to taxpayers.
What is being done to prevent tax evasion?
LITVIN: The system employed by the country has changed drastically to become one that uses digital tools to immediately detect irregularities. Today, an inspector knows everything before arriving at any company because all their information is available online at the tax agency. The audit strategy has advanced significantly because information is the most important asset. While we are at the forefront of tax administration, we still have a great deal of evasion to overcome. Furthermore, the exchange of US tax information with Argentina, scheduled to take place in 2019, should mark an important step towards fiscal normalisation.
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