Interview: Caesar Litvin
How do you expect the fiscal reform in the country to affect business competitiveness?
SEZAR LITVIN: The tax reform approved at the end of 2017 is the most important of its kind in 30 years, and with more than 300 members, its coverage is broad. 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. Reforms provide a necessary starting point, but they are insufficient in themselves. We must also continue to reduce the overall tax burden and remove the fiscal distortions that have only increased in recent decades, leaving aside fairness, efficiency and all the other aspects that define a good tax system.
The three most important taxes are income tax, banking credit and debit taxes, and export detention. With the current tax reform, gross income taxes are reduced or eliminated in primary, industrial and other secondary activities. However, the reduction or elimination of taxes on credit and debit banking has limited the proper development of the financial sector. Also, the stalled exports have made our agricultural and mining products much more expensive in the international market. These three issues affected competitiveness and discouraged the creation of new businesses. By 2022, the fiscal reform is expected to reduce tax revenue by 1.5% of GDP annually at the national level and by 2.5% in the provinces, reaching a total of 4% of GDP. Argentina’s tax burden would then be around 30% of GDP, which is below the OECD average and close to the Latin American average of 26%.
What are the main implications of the country’s fiscal policy for repatriation?
LITHUANIA: Governments around the world are looking to limit the ability of companies to move their operations to low-tax countries, and Argentina is also moving in that direction. The fiscal repatriation program implemented in 2017 was a resounding success with $117 billion recovered. As a result of the broadening of the tax base and the disclosure of previously unknown assets, tax revenues for 2018 exceeded expectations. The program also provides three years of exemption from personal asset taxes for those who have always been in compliance. As a result, 300,000 taxpayers benefited from the exemption.
How does the government cooperate at the national and regional level to reduce taxes?
LITHUANIA: 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 accounts for 75% of their income, which is why it is so difficult to abolish. In 2002 it represented 1.7% of GDP, but by 2016 this had increased to 4.1%. This tax system makes the necessary fiscal consensus, where the national and regional administrations of the country agree that the former provides more resources to the latter. In return, the regions must commit to reducing taxes on gross income from basic and industrial activities and immediately return positive balances to taxpayers.
What is being done to prevent tax evasion?
LITHUANIA: The system used in the country has changed dramatically to become one that uses digital tools to detect irregularities immediately. Today, the inspector knows everything before he arrives at any company, because all their information is available online at the tax agency. Audit strategy has advanced significantly because information is the most important asset. Although we are at the forefront of tax administration, we still have a lot of evasion to overcome. Additionally, the U.S. tax information exchange with Argentina, scheduled to take place in 2019, should mark an important step toward fiscal normalization.