Analysis | Income Tax Modification Bill

Félix José Rolando, Tax Partner of Andersen Argentina, analyzes the new Income Tax Modification Project –Creationof the Tax on Higher Income.

Traditionally, the essential characteristic of the Argentine income tax is its capacity to measure the taxable income (obtained in different categories) of each taxpayer, i.e., it is a personal and unitary tax, where for the purpose of determining the amount of the tax levied on each person, different aspects (deductions) of the subject are taken into account that may lead to a better measurement of his or her taxpaying capacity.

The new tax modification bill, known as “Higher Revenues”, would have effects for
The new tax law, which will be in force in fiscal year 2024, basically consists of excluding income obtained by workers and retirees from the aforementioned personal and unitary tax, in order to reach them with a schedular type tax (more depersonalized).

In other words, profits from salaries and pensions would continue to be subject to the tax, but with a new form of schedular taxation.

The amendment basically consists of incorporating a new Chapter III (in Title IV) of the law through which the new schedular tax is incorporated, which will be applicable to the “higher income” originated in the work in relation of dependency, retirements and privileged pensions. Basically,
with some exceptions, the income mentioned in subparagraphs (a), (b) and (c) above would be included in the schedular tax. a), b) and c) of article 82, which refer to income from public offices, salaries and pensions, respectively.

These incomes, with some exceptions, would be taxed under the schedular tax with the following characteristics
The following are indicated below:

1) The computation of an annual non-taxable minimum equivalent to 180 minimum vital and mobile salaries (SMVM), which at today’s values would be Ps. 21,240,000, would be applied as the only deduction. In the case of individuals located in Patagonia, the amount of the minimum non-taxable income would be increased by 22%.

2) Surplus profits would be subject to the schedular tax, applying for such purpose a progressive scale whose brackets range from 27 to 35%.

It should be noted that for these purposes and in order to apply this schedular tax, any other personal or general deduction that may be applicable is eliminated, that is to say, only the deduction of this new non-taxable minimum will be allowed without any other deduction allowed. In this way, contributions for retirement, social security, family expenses, etc., would no longer be computed.

It is also noted that the amount of the non-taxable minimum mentioned above will be set at the value of the SMVM corresponding to January 1 of each year and such value will be updated as of July 1 of the same fiscal year according to the value of the SMVM as of such date. In other words, the amount of the non-taxable minimum will be adjusted every six months, and since the tax liquidation continues to be on an annual basis, the updating (for the same variation of the SMVM) of the withholdings incurred is also contemplated.

We understand that the proposed reform will reduce the progressiveness of the tax, by applying the new schedular taxation to this type of income, causing the high amount of the non-taxable minimum (in our opinion) to leave out of taxation a level of income that externalizes in our opinion the taxpaying capacity.

Likewise, there continues to be a sharp and clear discrimination with respect to independent work. We can explain this in this simple example, considering the current deductions and scales of the tax, and starting from the non-taxation threshold that would correspond to an employee in a relationship of dependence (considering including the exempt S.A.C.), it is observed that the independent worker would have to face an annual tax of $ 5,496,610.

Although the reform is inspired by the idea of improving workers’ consumption capacity, we wonder how the project would be financed, given that, if the source of financing continues to be monetary issuance, the announced greater purchasing power will tend to be diluted through a permanent and accentuated increase in prices.

For any questions in Argentina, please contact

Félix José Rolando.
Tax Partner
Felix.Rolando@ar.andersen.com

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