Felix Rolando, Partner at Andersen, details why progressive scales should be revised and deductions updated, and compares the thresholds that reach employees and self-employed workers.
We reproduce below the complete article published by iProfesional:
The Minister of Economy, Luis Caputo, spoke about the tax reform and anticipated that the Income Tax will change for workers and retirees, among whom today there are 737,584 taxpayers with salaries over $2,800,000 approximately.
Caputo assured that “the tax reform will favor everyone: Nation, provinces, businessmen and the people. We are going to have a simplification scheme and lower taxes. There will be a reduction of Income Tax for individuals and a very big incentive for the development of the capital market”.
“Surely the announcements have to do with the interaction between the tax reform and the labor reform that is being planned and that, according to the information gathered, one of the changes would be the creation of what is called ‘dynamic salaries’,” says Daniel Pérez, of the Pérez & Fiocco law firm.
“This new concept refers to the possibility of establishing a new conventional form, a reordering of the current system of conventional wages: where, the conventional minimum wages would become a “ceiling” instead of a “floor” and thus it would be left to the companies to increase wages”, he explains.
“This new mechanism would have an impact on income tax, which would mean that the tax would have to be adapted to the new salary guidelines,” he warns.
How many workers and retirees pay Income Taxes
The figures of the number of workers and retirees paying income tax in Argentina have varied considerably over the last few years due to constant legislative changes and the updating of salary floors.
With the data available as of October 2024, 737,584 people pay Income Tax, broken down as follows:
- Employees in a relationship of dependency: 640,837 people.
- Retirees and pensioners: 96,747 people.
The number of taxpayers is constantly adjusted with each modification of the Minimum Taxable Income and deductions.
By the second half of 2025, a single worker without children starts paying from a gross salary of around $2,843,180 (net amount of $2,360,180). Against this, the poverty threshold is at $1,176,000.
“If we want to have a good tax system, there should be a personal income tax, but with scales and deductions according to the economic reality of the country. With the deductions and the scale we have today, salaries that should not show a great contributive capacity, end up paying even at the maximum rate of 35%”, emphasizes Carlos Fernández, from Crowe Argentina.
The floor for retirees is constantly updated, since the special deduction for retirees is maintained at the equivalent of 8 minimum salaries.
“Regarding retirements and pensions and provided that this represents the only income (and certain patrimonial conditions), the special increased deduction is applied, taking into account eight times the minimum guaranteed credit. Being the minimum guaranteed credit as of October 2025 of $326,298.38 (without the bonus), the eight minimum monthly amounts to $ 2,610,387.04”, states Daniel Pérez, from the law firm Pérez & Fiocco.
“Comparing this magnitude with the maximum pensionable amount of $2,195,679.22, actually a smaller sector of retirees and pensioners are affected by the tax,” it states.
What the new Income Tax should be like
“The reform of the Income Tax on the fourth category should go beyond a simple update of minimum rates. It is necessary to move towards a structural revision that restores progressiveness to the tax while respecting the principle of contributive capacity”, says Francisco Blanco, partner of FABTAX Tributaristas.
“The objective should not be exclusively for tax collection, but to correct the distortions that have turned this tax into a disproportionate burden for the salaried middle class on a tax that originally impacted high income earners,” he says.
The central axes of a reasonable reform are the following, says Blanco:
1. Automatic and dynamic updating
The mechanism for adjusting deductions and the non-taxable minimum is inefficient in the context of the high inflation that Argentina has historically suffered. It would be more appropriate to adopt a quarterly update linked to the CPI for the calculation of the fourth category monthly withholdings.
We should start from a higher non-taxable minimum that really impacts high salaries and not the disproportionate mass that is impacted today and that evidently were not the original recipients of the tax at the time this tax was created.
2. Extension of deductions
The current regime offers very limited deductions, which do not reflect the real cost of living or the expenses necessary to generate income. Concepts such as education, private health and mortgage interest, whose ceiling is currently symbolic, should be incorporated or updated. In this way, the tax would once again consider the taxpayer’s true economic situation and taxpaying capacity.
Why the scaling scheme has to be changed
Greater progressivity in scales
The current scales are too short and generate abrupt jumps in the tax burden in the face of marginal increases in income. A reconfiguration that broadens the brackets and automatically updates them for inflation would allow the maximum 35% tax rate to fall only on those who actually have a greater contributive capacity, says Blanco.
“The progressive scale currently used to determine the tax should be reviewed, since, for example, by the year 2025 a worker who is responsible for his wife and two children, begins to be taxed from approximately a monthly income of $2,900,000, and the poverty line threshold is currently $1,176,000,” says Felix Rolando, of Andersen Argentina.
And, regarding the problem of the self-employed, he adds:“if the same person works independently, the threshold to be taxed will be from a monthly income of $2,400,000″.
What is the problem of the self-employed
4. Equalization of the special deduction for the self-employed.
This is probably the most urgent and necessary change. Historically, the special deduction applicable to self-employed workers is substantially lower than that of employees in a dependent relationship, says Blanco.
“Self-employed workers (not mono-taxpayers) have always been the forgotten ones of the system. If a reform of the Income Tax is proposed, the inclusion of the income situation of these workers should also be considered”, emphasizes Pérez.
5. Income tax withholdings applicable to self-employed.
The income tax withholding regime imposes a very significant financial burden on the self-employed when paying each invoice, which should be addressed in conjunction with a tax reform, says Blanco.
These payments on account are in addition to the income tax advances that the self-employed must make during the fiscal year and that potentially have the risk of generating possible credit balances, he states.
What happens with income tax deductions
“It is necessary that the general deductions contemplated in the law have more reasonable amounts that are more in line with reality. For example, at present, a maximum deduction can be made for mortgage interest, the ridiculous amount of $ 20,000 per year, and funeral expenses of $ 996.23 per year”, Rolando points out.
“In addition, the tenant should be allowed to deduct 100% of the rent of his or her home (currently limited to 40% or the equivalent of the MNI, whichever is lower), as this would level the playing field a little more between owners and tenants,” he says.
“On the other hand, the full deduction of medical expenses and medicines should be admitted, since far from externalizing a high contributive capacity, it manifests the attention to people’s basic demands,” he considers.
Thus, the tax reform will bring changes in the Income Tax that go hand in hand with the “dynamic salary” proposed by the Government in the labor reform.
If you have any questions about this topic, please do not hesitate to contact us:
Félix Rolando
Tax Partner
felix.rolando@ar.Andersen.com