Raise the Monotax and have more employees pay Profits: the IMF proposal for Argentina

This is how it arises from staff report, a document where, among other points of the economy, the organization analyzed the problems of the tax system and mechanisms to make it “more efficient and equitable” through a reform which contemplates the reduction of tax expenditure or tax exemptions and the increase of some taxes.

In that report, the agency points out that, if the Monotributo simplifies tax compliance, encourages formalization and expands health and pension coverage, imposes a much lower effective tax burden than the general system, which generates “business fragmentation” and limits the growth of companies.

According to the Fund, the fixed payment structure also creates significant discontinuities in tax liability between different income thresholds, which discourages access to higher levels.

“Any reform should reduce the impact of these thresholds, harmonize effective tax rates and social security contributions with the general system and take advantage of digital tools to simplify tax compliance,” says the IMF.

In this way, while the Government advances in a reduction of withholdings for the countryside and industry, together with the reduction of social charges for companies contemplated in the labor reform and the Super RIGI, “alignment” with Profits would mean paying more for monotributistas and would have a tax gain of 1% of GDP.

Last November, Clarion revealed that Luis Caputo’s team discussed with businessmen and taxpayers a proposal to eliminate the Monotax regime and that those taxpayers would move to the self-employed regime, a measure that The Fund has been proposing for some time to “whiten” the economy.

Monotributistas became a gravitating category in the labor market and the tax system. The regime created 27 years ago to formalize taxpayers It went from having 300,000 registered in 1998 to more than 4.7 million voluntary adherents and it was one of the employment categories, along with informal employment, that grew the most in the Milei era.

The initiative that was never made official, but which appeared in documents accessed by this media, It also contemplated creating a single minimum in the Income Tax, which meant lowering the floor from which the tax begins to be paid to expand the number of salaried workers registered in the tax.

In line with this proposal, the Fund now proposes modifying Profits, the second pillar of collection. Sergio Massa’s reform of 2023 – supported by Milei – drastically reduced the universe of workers reached and today pays less than 1% of formal employees. The IMF asks to return to the criteria of 2019, when at least 20% of formal workers were paid.

If today there are approximately 10 million formal workers in Argentina, bring coverage to 20% It would imply that some 2 million people who today do not pay Profits begin to do so. The fiscal impact would be around 0.4% of GDP, equivalent to about US$3 billion annually.

The Fund also requests simplify scales and harmonize deductions between different categories of workers, who today have very different treatments. An employee in a dependent relationship, a self-employed person and a monotributista with similar income pay very different charges.

Regarding VAT, the main pillar of collection, the Fund’s proposal is unify rates – eliminate reduced rates and the most questionable exemptions – and compensate vulnerable households directly, outside the tax system.

The organization considers that subsidizing the price of bread by lowering VAT is inefficient, since it benefits everyone equally, including those who do not need it. Hence, he proposes charging the general rate and transferring money directly to those who need it most.

VAT has multiple rates: the general rate of 21%, reduced rates of 10.5% for certain goods and exemptions for others. These differences generate tax expenses, since The State stops collecting 1.2% of GDP per year due to exemptions and reduced VAT rates.

In that way, The changes would imply an increase in the VAT rate for food of the basic basket that today pay 10.5% or are exempt. The net fiscal gain would be around 0.4% of GDP.