The Chamber of Deputies. Photo via La Nacion

After some of the most intense political negotiating of the year, the Government, most of the opposition, the CGT umbrella union along with the provincial governors have finally reached an agreement to reform Argentina’s income tax.

The bill was approved yesterday in the Chamber of Deputies with 167 votes in favor, 5 against — all from the Leftist Workers’ Front (FIT) — and three abstentions. Most of the Victory Front (FpV) deputies left the chamber before the voting. 3 representatives, President of the Justicialist Party (PJ) José Luis Gioja among them, stayed to vote in favor.

Speaking to press outside the chamber, FpV Deputy and former Economy Minister, Axel Kiciloff, said that “when it comes to the tax’s scales [we’ll get to it later], this project is even worse than the one the Executive branch presented originally…The government says about 400,000 workers will stop paying the tax, but roughly 2 million will have to pay it after next year’s salary negotiations.”

In contrast, President of the Lower House’s budget committee, Luciano Laspina, highlighted the willingness to build consensus among most of the parties and praised the new law: “the agreement was massive, minus the FpV which didn’t join. Compared to the original bill, this one increases the fiscal deficit by AR $7 billion. There will be a sensible reduction to the income tax since January…. We agreed on a tax floor that will be the highest in Latin America. Plus, scales will update according to salaries,’ he added.

Photo via La Nación
The final voting. Photo via La Nación

The Lowdown On The New Tax

  • The bill puts the tax floor halfway between the administration’s and the opposition’s original proposals. The threshold is set at AR $37,000 (or a monthly net salary of AR $30,500) for married people with two kids. For single people, anyone earning AR $27,941 (net salary of AR $23,200) and above will have to pay income tax.
  • Overtime and double time pay on holidays will not be taxed. This was a main point of contention for unions. 40 percent of overtime on regular workdays will not be taxed either, but the remaining 60 percent will. The case will be the same for commuting expenses.
  • Those who have to pay income tax will be exempt from paying tax on the money from their income that goes to paying rent.
  • The so called Aguinaldo — an extra half salary that is paid to workers in June and December, in accordance with Argentine labor law — will still be taxed, but in a way that is carried out throughout the year, rather than only on the months when it is received.
  • There will be extra deductions of up to 22 percent for those who live in Patagonia due to the territory’s challenging [and expensive] living conditions.
  • Only retirees with pensions higher than AR $40,000  per month will have to pay income tax.

Scales

Those affected are taxed over an established standard percentage of their income when it’s between the new floor — AR $37,000 for married taxpayers and AR $27,941 for single individuals, respectively — and AR $57,000.

Reaching an agreement with the CGT union paved the way to widespread consensus
Reaching an agreement with the CGT union paved the way to widespread consensus. Photo via Paraná Chat.

But those who earn up to AR $20,000 more than the AR $57,000 — the top of the first scale — will be taxed an extra 5 percent on this sum. In other words: they will have to pay the standard percentage on a part of their income up to AR $57,000 and the standard percentage plus an extra five percent on the difference. The percentages rise based on the level of income.

Those who earn between AR $20,000 and AR $40,000 over the tax floor will be taxed an extra 9 percent. Other scales are the following:

  • Between AR $40,000 and  AR $60,000: 12 percent
  • Between  AR $60,000 and  AR $80,000: 15 percent
  • Between  AR $80,000 and  AR $120,000: 19 percent
  • Between  AR $120,000 and  AR $160,000: 23 percent
  • Between  AR $160,000 and  AR $240,000: 27 percent
  • Between  AR $240,000 and  AR $320,000: 31 percent
  • Over  AR $320,000: 35 percent

Scales and the tax floor will be modified automatically, in line with annual inflation, starting in 2018. The fiscal cost of between AR $5 and $8 billion will be financed by taxing the gambling industry and the extra income that comes from modifying the policy in a way that makes “the wealthier pay more”.

One person who didn’t agree with this was FIT Deputy Nestor Pitrola: “We left with an extremely bitter taste. At least a million and a half workers will continue paying the tax. And a worker who earns a net salary of AR $30,000 will pay even more than with the government’s original project. The CGT negotiated that. What the chamber voted was shameful. Corporations must pay,” he said.