Argentina Unveils Plan to Slash Corporate Income Taxes to Promote Investment

November 3, 2017


Argentina plans to cut corporate income taxes to 25% by 2021 for companies that reinvest profits, it said on Tuesday, part of a wide-reaching tax reform bill intended to accelerate investment in Latin America's no.3 economy. The bill, which would slash taxes for companies willing to reinvest in Argentina from 35%, will be sent to Congress in the coming days, Treasury Minister Nicolas Dujovne said.

The proposal marked the first concrete step President Mauricio Macri's administration has taken toward deepening its business-friendly reform agenda since his “Let's Change” coalition swept to victory in midterm legislative elections last week.

The bill, which also includes some tax hikes, including a new capital gains tax, highlights the difficult balance the government faces in seeking to lower costs to attract investment, while also reducing a fiscal deficit seen at 4.2% of GDP this year.

“In the short term we have two competing goals: lowering the deficit and cutting taxes,” Dujovne told a news conference. “In the long term, they probably do not compete because lower taxes would generate less evasion and more government income.”

The corporate income tax cut would apply only to profits not distributed to shareholders as a means of encouraging investment, the Treasury Ministry said in a statement.

Dujovne said the reform would have an overall fiscal cost of 1.5% of GDP over five years, but that would be offset by greater economic growth and lower tax evasion to make the proposed reform revenue neutral.

The bill includes a new capital gains tax of 15% on profits from government bonds issued in foreign currency or indexed to inflation and 5% on local-currency, non-indexed bonds. That could initially contribute around 0.2% of GDP in government revenue, Dujovne said.

While companies currently pay capital gains tax and individuals pay it on foreign-issued bonds, individuals are exempt from paying it on local assets. Dujovne said that made Argentina an outlier in Latin America and among Organization for Economic Development and Cooperation (OECD) countries.

“There is no reason not to do it,” Dujovne said. “Of the 35 countries in the OECD, 34 charge a capital gains tax.”

Capital gains income from stocks would remain exempt. Dujovne said he did not expect the new tax to harm the country's capital markets. Other taxes offsetting the fiscal impact include an increase in taxes on sugary drinks and alcoholic beverages, and a tax on sales of second homes.

Tags: argentina, corporate income tax, fdi, investment, latam, macri, tax reform
Posted in LatAm, Macro Economics, Macro Economics