Universalize the promotion of the knowledge economy - IDESA


Report Nº: 81028/05/2019

Universalize the promotion of the knowledge economy

With a broad consensus, Congress passed a law to promote knowledge companies. If the same incentives were applied to the rest of the economy, the positive impacts would be multiplied. For this to happen, it is essential to extend the consensus in Congress in favor of a strategy for the public sector reengineering. The recently […]

The recently approved “Regime for the Promotion of the Knowledge Economy” aims to promote productive activities linked to the use of knowledge and the digitization of the information. The new regulation gives continuity to the “Software Law,” which regulated exclusive benefits for software development companies. Now, the promotion is extended to audiovisual activities, biotechnology, bioeconomy, biology, neurotechnology, genetic engineering, geoengineering, nanotechnology, artificial intelligence, robotics, industrial internet, among other scientific activities.

This policy has high relevance for economic and social development since it promotes companies that develop research activities and apply scientific knowledge to the production process. However even more remarkable is the fact that it was sanctioned with a broad consensus in an election year. Legislators belonging to different political groupings were able to put aside pre-electoral differences to unify criteria and create a friendly context with investment, employment, and innovation for this type of companies.

One way to evaluate the pertinence of this extension of the policy to other activities is by looking at the impact that presumably the old software law has had. Although there is no official information, an approximation can be made with data provided by the software business chamber (CESSI). According to this source, between 2009 and 2018:

  • Software exports went up from 929 to 1,701 million dollars annually.
  • Employment in the software sector went up from 69 to 102 thousand workers.
  • This means that exports per worker went up from 13,500 to 16,700 dollars per year.

These data show that the software sector, encouraged by the promotion regime, has expanded solidly and with increasing international competitiveness. This is reflected in the fact that each worker generates a higher amount of foreign currency. An interesting point of reference can be the automotive industry, which is also a beneficiary of a special regime based on external protection, and between 2010 and 2018 showed exports virtually stagnant at around 8 billion dollars. These pieces of evidence suggest that extending the promotional benefits of the software to the rest of companies dedicated to knowledge generation is a pertinent idea.

What are the promotional measures that obtained such a broad consensus in both houses of Congress? Summing up, the main ones are: 1) the reduction to 15% of the Income tax rate for reinvested earnings; 2) the guarantee that the tax burden will not be increased in the future; 3) the non-taxable minimum for employer contributions will be set at 100% (instead of going up gradually until 2022 as established by the general regime); 4) a tax credit bonus equivalent to 1.6 times the amount paid for employer contributions to pay VAT and Profit; and 5) VAT withholdings will not be applied.

Regrettably, the modernization of labor legislation has been left apart even though employment regulations in Argentina date from the 70s and 80s. At that time, artificial intelligence, robotics, digitization, and even the internet were science fiction. It is being missed that in all sectors of the economy, and especially in the knowledge companies, profound transformations are taking place in labor relations. In the knowledge economy, it is key to get out of the traditional thinking that seeks to fit any productive relationship between people into a typical salaried relationship. The new work is based on dense networks of interrelations between individuals and companies that even they do not get to know each other. In addition, people work independently mixing their hours dedicated to work with leisure.

It would be very positive and equitable that, as it was agreed with the law for knowledge companies, the consensus be extended to provide these same benefits to the rest of the economy and to modernize old institutions, such as labor laws. For this to be possible, it is essential to agree on structural reforms in order to reduce public spending so that the universalization of the tax reduction would not compromise the fiscal balance.

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