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ECONOMY | 21-11-2020 10:06

‘Wealth tax’ could hit as three times more people than anticipated

Tax expert warns bill to impose one-off levy on assets of rich could eventually hit as many as 30,000 people, depending on exchange rate at time it becomes law.

Various tax experts and economic analysts warn that the so-called ‘wealth tax’ bill, approved by the Chamber of Deputies in the small hours of Wednesday morning, will reach three or four times more tax-payers than estimated.

As many as 30,000 individuals could be affected, raising the prospect of litigation against the state and casting doubt on the aim of raising 300 billion pesos via this one-off tax. 

Following Congress approval, tax expert César Litvin, a member of the Consejo Profesional de Ciencias Económicas association of professional economists, warned: “Without a doubt. the number of tax-payers covered will be much greater than the 10,000 or so calculated by the government.” 

“You need to multiply by three or four. It’s difficult to be precise, because everything depends on the exchange rate fixed when the law is promulgated,” Litvin told Perfil

“When the government did its sums for this bill, the official exchange rate was 59.60 pesos per dollar and today it is 30 percent higher. The equation is therefore really bad. They are more than should be paying and very few are going to pay.”

In Litvin’s view, the initiative “totally” dismantles any incentive for investment, considering that “the country is like a body which needs more vitamins and instead of giving them to it, they’re taking them away.” 

“We’re moving in the opposite direction to luring investments,” he underlined.

He was echoed by another tax expert, Iván Sasovsky. “The real scope of this tax will depend on the exchange rate at the time of the promulgation of this law,” he said. 

 “The issue is that since the idea first came up with the first numbers, today’s panorama is totally different, owing to the devaluation of the peso,” considered Sasovsky. 

He explained that assets, as from US$3.3 million on which the tax was to be levied, were now down to US$2.3 million due to devaluation, which implies a raising of the tax floor.

“The government calculated a restricted universe for this tax but a constantly unstable currency will directly affect the number of tax-payers who will have to contribute,” underlined Sasovsky. 

Nor is it clear to the expert “how much this tax will yield because it will totally depend on the exchange rate when the law enters into effect.”

 “One issue also to be considered is that the gap [between official and parallel exchange rates] will imply a liquidation of the revenues earned by this tax, bearing in mind that the gap is over 100 percent at this moment,” he emphasised.

Exodus?

Like Litvin, Sasovsky considered that the “special contribution” will trigger an “exodus of investments, because it punishes the local investor when the foreign investor is not covered by this norm.

The experts aren’t the only ones with concerns. Certain sectors of agro-industry have also come out strongly against the initiative, warning that it could “seriously compromise the future.”

José Martins, president of the Buenos Aires Grain Exchange and spokesman of the Consejo Agroindustrial Argentino, said: "We in agri-business question the proposed wealth tax bill because although it might seem an attractive idea in the short run, the reality is that it seriously compromises recovery and, worse still, the future." 

He argued that "private investment, unlike political decisions, require a process of evaluation with many aspects, which this bill affects directly – a predictable and reasonable legal framework, that process of attraction or seduction which the investor must feel and the necessary accompaniment of the authorities are factors which will be absent when evaluating any business project."

Speaking to the Noticias Argentinas news agency, Martins said: "If the economy does not succeed in regaining the confidence of productive investment, the exit from the crisis will be increasingly conditioned and this might hamper the ongoing negotiations with the International Monetary Fund."

He warned that agro-industrial activity "could be affected in its dynamism, federalism and inclusiveness, especially inland, due to the loss of cash flow." 

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Fernando Nolé

Fernando Nolé

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