Informe Nº: 16/04/2018
The fiscal reform approved in December 2017 introduces important changes in social taxes. The general orientation was to reduce high employer contributions focusing in the lower salaries. Thus, a non-taxable minimum was incorporated into the social taxes to give them progressivity, alleviating their impact on the lowest salaries and moderating the fiscal cost. The convenience of this scheme was highlighted in several IDESA reports since 2005.
Along with this change the unification of the rate of employers’ contributions was established at 19.5%, increasing the pressure on SMEs, agriculture and industries that had a reduced rate of 17%, and reducing it to firms in the services sector that had a rate of 21%. The other important change is that the mechanism, by which increasing percentages of employer contributions based on the distance to the Capital that can taken as VAT credit, are eliminated.
What is the final impact of all these changes on SMEs, agriculture and industries according to geographical region? Taking as reference an average salary of registered workers, which is around $ 25 thousand monthly, it is observed that:
These data shows that there is a proportionally greater reduction in the tax burdens in the City of Buenos Aires than in the interior. The gap is increasing depending on the distance to the Capital. The phenomenon occurs because the percentages of employer contributions that can be taken as VAT credit, which are the higher the longer the distance from the Capital, are eliminated. As an example, the City of Buenos Aires did not have VAT credits for employer contributions while Jujuy, Salta, Formosa, Chaco, Corrientes and Misiones could take up to 10 percentage points of employer contributions as VAT credit. In the case of companies with high remunerations (that is, where the non-taxable minimum has less impact), ceasing to be able to use part of the social charges as VAT credit will induce job destruction.
The tax unification by geographical region constitutes a gross discrimination against the interior. It is being overlook the enormous quantities of resources, levels of development and competitiveness that are concentrated in the metropolitan area. It is easy to show that exporting from a province in northern Argentina is much harder than doing it from regions closer to Rosario or the City of Buenos Aires.
The current situation is traumatic for firms in the interior of the country. The persistence of high inflation and its corollary of high financing costs, the resistance of many provinces to reduce the Gross Income Tax, the high transportation costs due to regulatory distortions and the lack of infrastructure, the centralization of collective bargaining according to prevailing criteria in CABA, more climatic factors in some regions, impose a severe economic stress on the productive sectors of the interior. In this context, the tax reform ends up worsening the problems by unifying the social taxes with CABA. Under these conditions it should not be surprising that exports grew only 18% since 2015, the most depressed year of the decade, while in the same period imports have done so at 30%, reaching the highest levels of the decade.
Establishing a non-taxable minimum on social tax is one of the most positive elements of the tax reform. However, its impact is blurred by eliminating the possibility that employer contributions may be considered VAT credit with higher percentages in the most underdeveloped areas. Therefore, it is highly recommended to reset this mechanism. If the error is not amended, good initiatives that seek to reduce regional development gaps, such as the Belgrano Plan, will be degraded to mere voluntarism or, even worse, opportunism