Page 11 - MONTT GROUP MAGAZINE, ENERO 2018 (ENGLISH)

the rises in wages and inflation, with quarterly updates. The problem is that the new index authorizes an expansion of only 5.7 percent, compared to the 14 percent that prevailed so far.
The Government expects to save, immediately, 60 billion Argentine pesos (two thousand 850 million euros). The ruling coalition reassured legislators and pensioners that the new scheme would link, in time, with the old system and would achieve similar increases to those existing, when inflation is reduced, something that the authorities assured will happen under the new measures adopted by the Government.
Tax Reform
The approval of the Pension Reform was on the verge of failing, when in a first debate the session had to be suspended due to the violence unleashed outside the headquarters of the Congress. After the legislative failure, in a second meeting, the Government of Macri was forced to offer next March an amount of five thousand million Argentine pesos (294 million dollars) to distribute among nine million retirees.
On the other hand, in the last session of the year, the Senate gave the green light to the Tax Reform, which, among its most relevant aspects, establishes the gradual reduction in five years of the percentage of the Income Tax for undistributed dividends of the companies. This decrease goes from the current 35 percent to 25 percent in 2021. The reduction only applies to companies that reinvest their profits; if they decide to distribute them among their shareholders, they will pay an additional seven percent in 2018 and 13 percent the following year. According to the Global Competitiveness Report of the World Economic Forum 2016-2017, Argentina’s tax burden is the highest of the 138 economies analyzed. The World Bank maintains that the
taxes of that country represent 137.4 percent of the profits obtained by the business corporations. That is, the State, through various taxes, is left with more resources than those obtained by each company as a benefit. The higher the tax pressure, the less competitiveness the economy has, it is asserted.
The Tax Reform also proposes the early refund of the balances in favour of VAT for the investments made by the firms. The most novel point is that financial income will be taxed for the first time: the rate of tribute that will be paid by financial profits, difference between investments in national currency, five percent and foreign currency, 15 percent.
With respect to the reduction of employer contributions, these are abolished up to a gross remuneration of 12 thousand Argentine pesos (around 640 dollars) until 2022, adjusted to the inflation that will exist at that time. As every year, Congress also approved the extension of the tax on bank credits and debits, known as Check Tax. This time the law extended the validity of the tribute until December 31, 2022 and allocated all of its collection to the pension system, unlike what happened until the vote of the bill, which assigned 85 percent to the Treasury and 15 percent to the provinces.
Food Tax
In the middle of the negotiation to obtain the votes in order to approve the reform, the Argentine government backed down with some taxes planned initially, like the one of the wine and other alcoholic beverages that will continue without imposing tax because it could affect regional economies. Taxes on food, such as chicken, pork and rabbit, fall from the current 21 percent to 10.5 percent.
Compensation, that is, payments for dismissals, will be subject to taxes
only for managerial or high-ranking positions, although at the beginning it was planned to include all workers in this range, without any differentiation. The Budget Law was also approved for 2018, which foresees growth of the economy of 3.5 percent and an average inflation of 15.7 percent. It is established that the gross investment will have an increase of 12 percent this year.
It is estimated an annual expenditure of 2,721,450 million Argentine pesos (145 thousand 532 million dollars) which means 15.1 percent more that in 2017 and that corresponds to 22 percent of the Gross Domestic Product, (GDP). Projected revenues amount to 2,325,839 million Argentine pesos (124 thousand 376.4 million dollars), with a year- on-year increase of 19 percent and equivalent to 18.8 percent of GDP. The law also sets a cap on the fiscal deficit equivalent to 3.2 percent of GDP by 2018.
Public-Private Participation
Finally, Congress approved the bill of the Executive that establishes a new regime of Public-Private Participation. The project introduced modifications to the regulations of Law No 27,328 on Public-Private Participation Contracts and implemented a transparent consultation procedure for these contracts.
The Undersecretariat approved the Guide for Transparency in the Management of Public Procurement. This is a novel tool that allows a balanced and predictable cooperation between the private sector and the public, which the current Government has been promoting since the beginning of its management.
The initiative aims to provide the legal security and predictability required to attract investments in the infrastructure sector.
The approval of the Pension Reform was on the verge of failing. In a second session, the Macri government was forced to offer 294 million dollars to distribute among nine million retirees.
Montt Latin American Magazine p11