Economy works on tax reform amid tensions with governors and businessmen

“Go out and report them, we are going to ban them”. Luis Caputo was direct. The situation occurred two weeks ago during a meeting in which a group of automotive terminals complained about the increase in municipal rates and the Minister of Economy responded with this call for war against the Buenos Aires mayors. The talk illustrates some of the challenges currently facing the tax reform on which the economic team is working.

Since the May Pact, Javier Milei promotes a drastic change in the tax regime including the rediscussion of federal co-participation. And in recent days, the idea of ​​eliminating “about 90% of national taxes” to go to a system that has “no more than six taxes” has been revived. One of those that could survive is the 7% tax on tickets abroad: the Government extended it this Monday until 2027.

Instead, The tax on debits and credits (known as the check tax) is one of the first that must “disappear”, according to Milei’s list. Another candidate is gross income, which depends on the provinces and requires “another tax reform.” “To modify the cup there must be unanimity or change the way of collecting the tax, and unanimity is impossible,” they acknowledge in an official office.

Besides, The president believes that it is important to lower VATthe main pillar of collection with a weight of 30% of the total. And last month he promised that he would “attack” the withholdings, a claim that sectors of the Liaison Table reactivated in recent hours due to the drop in the international price of soybeans and the appreciation of the dollar, in a context marked by the recent default of Surcos, Agrofina and Los Grobo.

Underneath, officials acknowledge that the measures would not be immediate, but they are optimistic: “What the President says he does, did the guy say or didn’t he say that he is going to lower duties on exports? “That’s going to happen”. In the main agricultural provinces, the governors believe that they should first reduce or eliminate withholdings, since they are not shareable, while the industrialists also demand a reduction in the tax burden.

According to an IDESA report, there are more than 150 taxes and The total tax pressure in 2024, adding the national and provincial taxes and excluding contributions and contributions to social security, amounted to 20% of GDP. Within this mass, five taxes explain 87% of the tax burden, the four main national taxes (VAT, Profits, Check and Export Duties) and the main provincial tax (Gross Income).

In this framework, IDESA proposes establishing a fiscal coordination agreement between the Nation and Provinces, without the need for unanimous support, through which VAT is allocated to the provinces and the entire collection of Profits to the Nation, and that VAT absorbs Gross Income and rates municipal and is distributed among the provinces with the same criteria that is currently used to distribute Gross Income.

Economía consulted some think tanks about their tax reform proposals, such as FundArwhich proposes eliminating withholdings on exports – which could be offset by the increase it would generate on Profits and VAT -, unifying the corporate tax rate at 35%, a minimum tax on sales or assets, an additional tax on income from natural resources and eliminate the exemption for rural real estate in personal property.

For the director of FundAr, Guido Zack, it is a “mistake” to count the amount of taxes to judge the level of distortion, as it warns of “double counting”. “There is no taxpayer who faces 150 taxes, it is false”he stated. And he questioned the plan to leave six taxes in place, since it implies eliminating taxes on alcohol, tobacco and fuel, generally intended to discourage consumption.