With broad approval across the political spectrum, Argentina's Congress this week approved a tax reform bill that raises the floor for income tax, empting almost 1.3 million taxpayers from qualification.
"It is an act of profound justice. It is a relief for those who earn less than 150,000 pesos (around US$1,500 a month at the daily exchange rate), almost 1.3 million workers," said Senator Anabel Fernández Sagasti, the vice-president of the Frente de Todos bloc in the upper house, speaking at a press conference on Friday.
Around 400,000 pensioners currently paying ‘ganancias’ are also set to benefit.
The changes to the tax code comes amid rising inflation, which totally 7.8 percent in just the first two months of the year. Officially, the government is aiming at a target of 29 percent this year, though private economists put the figure closer to 50 percent. In 2020, prices rose 36.1 percent.
The reform was approved by the upper house at around midnight Thursday, with the support of 66 senators and one abstention (PRO’s Esteban Bullrich). The opposition Juntos por el Cambio coalition backed the initiative.
According to the government, the measure is an attempt to boost spending in the economy. It arrives just as activity is starting to accelerate each month, after months of decline due to the coronavirus pandemic. Argentina has been in recession since mid-2018.
"The objective is to stimulate consumption," confirmed another leader of the ruling coalition’s bench, Carlos Caserio.
The economy contracted by 9.9 last year as Covid-19 hit Argentina, with poverty now at 42 percent and unemployment at 11 percent.
Until now, 2.3 million people pay income tax, out of a total of 8.5 million tax registered workers.
The reform had been earlier approved by the Chamber of Deputies with 241 votes in favour, no rejection and three abstentions.
"It is a measure of fiscal relief focused on the middle class. There are 44,900 million pesos [US$450 million) that are going to return to the economy. Everything goes to consumption, to commerce," said Lower House Speaker Sergio Massa, a promoter of the bill.
Companies also set to benefit
The government will also move to lower income tax for 90 percent of companies, mostly small and medium-sized, reducing the rate from 35 to 25 percent of their net earnings, following a Tuesday meeting between Cabinet Chief Santiago Cafiero, Economy Minister Martín Guzmán and Lower House Speaker Sergio Massa (who launched the original initiative), together with other members of Congress.
On Friday, the government confirmed it had sent Congress a bill to reform taxation on firms. The Senate is preparing a special session to incorporate these changes.
The fiscal cost of scaling back corporate taxation, aimed at generating business confidence and encouraging investment, has yet to be fully quantified.
The original reform bill raising the income tax floor to gross salaries of 150,000 pesos had carried an estimated fiscal cost of 41.25 billion pesos which was to have been offset by raising the rate to 35 percent for all companies with net earnings of over 2.6 million pesos. But instead the rate will be lowered from 30 to 25 percent for all net earnings below five million pesos with 35 percent applied only to profits exceeding 20 million pesos while all companies in between will stay on 30 percent.
The three-hour meeting was also attended by deputy Carlos Heller, author of the wealth tax and Senator Sagasti (Frente de Todos-Mendoza), who is close to Vice-President Cristina Fernández de Kirchner, as well as AFIP tax bureau chief Mercedes Marcó del Pont.