Tax in Argentina: GNP Group on reducing fiscal pressure
Argentina has the highest tax pressure in Latin America – but the complexity of the system provides opportunities for savings
The tax burden in Latin American countries has been on the rise since 2002. In Argentina, that marks the end of the country’s great depression, when a focus on improving tax collection helped the government spend its way back to growth. Nearly 15 years later, is it time for a review? Juan Elias Perez Bay, Partner of GNP Group, outlines the four main taxes that are putting pressure on businesses. But, he explains, the system’s complexity also presents opportunities for businesses to save.
World Finance: The tax burden in Latin American countries has been on the rise since 2002. Now, in Argentina, that marks the end of the country’s great depression, when a focus on improving tax collection helped the government spend its way back to growth. Nearly 15 years later, is it time for a review? Juan Elias Perez Bay from GNP Group joins me down the line.
Juan, talk me through Argentina’s growth story over the last decade, and how the tax landscape has changed.
Juan Elias Perez Bay: Well Paul, Argentina’s GDP has grown about 10 times over the last 12 years, while national public spending has grown 20 times in the same period. Naturally, this has had a strong impact on fiscal pressure, since tax collection precisely grew 20 times in the same period, in order to finance the growth of this public spending.
World Finance: Now, all Latin American countries have expanded their tax collection in recent years; what makes it particularly difficult in Argentina?
Juan Elias Perez Bay: Well, today’s fiscal pressure in Argentina exceeds 40 percent of GDP, measured by government indicators. About 10 years ago, fiscal pressure was approximately 20-25 percent of GDP. This situation puts Argentina at a clear disadvantageous situation in terms of competitiveness regarding its neighbouring countries.
If we consider Latin America, Argentina is today the country with the highest fiscal pressure: even higher than Brazil, with its complex fiscal system. And considering it has been historically the one with the largest fiscal pressure of the region.
This is the reason why the tax area in Argentina has taken on significant importance over the last years.
World Finance: So, talk me through the complexity. Which taxes have increased, and what makes them difficult for businesses to reconcile?
Juan Elias Perez Bay: The system is Argentina is based on four taxes, according to its participation in complete tax collection. VAT, income tax, tax on bank debits and credits, and export duties.
VAT increased due to GDP’s increase, and due to technical improvements in tax wealth systems and inspection processes, which contributed to reducing the informal economy in Argentina.
Income tax increased because of annual inflation of about 30 percent, in a country without any inflation accounting adjustment. So the result is the taxation of fictitious profits, as there is no adjustment for inflation in accounting statements.
The last two taxes: tax on bank debits and credits, and export duties, are relatively new taxes created in 2002. They have no joint participation with provinces; its growth is related to local GDP increase, and the increase of agro-industrial exports during the last 10 years in our country.
World Finance: Are there currently discussions to review some of these taxes? What might happen, and what’s the timeline?
Juan Elias Perez Bay: We have no certain idea about the timeline, but they surely have to be discussed and modified, of course. But, we clearly think that a discussion has to take place regarding taxes. We also think that when possible investment arrives in Argentina, the fiscal factor has to be considered as the one to keep an eye on.
Argentina right now is the country with the biggest fiscal pressure of the region. As the tax system is complex, with a good fiscal strategy (within legality, of course), it is possible to reduce the impact in a large part.
World Finance: So tell me about what can be achieved in reducing the impact of that taxation for businesses.
Juan Elias Perez Bay: Our philosophy consists of having the focus on fiscal strategy, taking into account that the economic conditions in Argentina has taken the tax matter to be really important.
We provide to our clients a team of highly trained businessmen dedicated to fiscal consultancy. And we find that our fiscal legislation has enough complexity to allow us to make fiscal management models that generate fiscal savings or tax delays – which considering an annual inflation of about 30 percent – which will cause important financial fiscal savings to companies, and in this way get important economic benefits.