Interior Minister Rogelio Frigerio assured the public that the government will send to a bill to Congress in hopes of finally reforming the income tax before the end of the year. No small feat, and a key campaign promise from last year — the government has taken heat throughout the year for not pushing the reform that has been central to many of the requests coming from trade unions for years now.
If they are serious about the “before the end of the year” part it will mean the government has to present the bill within the next 15 days, since Congress’s standard session finishes on November 30th. Should this not happen, the President has assured the public that he intends to call for extraordinary sessions to discuss the topic as well as other key bills. In any event, regardless of when it gets to the floor, the project will be debated next year.
“What’s important is for it to have impact in 2017, regardless of when it starts being discussed. We have also talked about it with governors because it will be something unseen in the past decades in Argentina,” Frigerio.
As Frigerio said, it doesn’t really matter at the end of the day when the bill goes through, as long as it happens in 2017. Since this is an annual tax, changes to the tax floor are retroactive in relation to January, meaning salaries earned from the beginning of the year will be affected.
However, the earners who stand to potentially benefit are probably waiting for the government to actually come through before taking out the champagne. They have been promised this before.
On February 18th last year, Macri announced an increase in the income tax floor, which went up from being set at a AR $15,000 to AR $30,000 for workers married with two kids and AR $22,700 for single people. In human language: people who had lower gross salaries (your salary before deductions) than the announced amounts wouldn’t have to pay income tax anymore.
This was met with resistance from the Victory Front (FpV) and other sectors such as the main unions for the simple reason that since these changes were not accompanied by changes to the tax brackets — the taxation percentage applied to people’s salaries, depending on how much they earn — the raise wouldn’t really affect how much money people got to hold onto at the end of the day.
How Do Brackets Work?
Let’s take a look at Timmy’s family’s case: right now, if Timmy’s family earns more than AR $42,000, they have to pay a 35 percent tax on the AR $12,000 that exceeded the tax floor (AR $30,000) since that amount fits in the highest category with the tax.
The problem is that brackets haven’t been modified since the early ’90s, when people thought that wearing sandals with socks was cool and earning AR$42,000 was the equivalent of being able to burn money to stay warm. So, there are a lot of people who are now earning the equivalent of what “high-income” workers earned back then and are thus being taxed as such but in fact, their purchasing power is much lower than what it would have been back then, making it difficult to pay the tax (thanks inflation).
Although the bill’s fine print hasn’t been disclosed, some elements have been leaked. According to La Nación the income tax floor, currently at AR $18,880 a month for single citizens and AR $25,000 for a married couple with two children, will increase by by 15 and 17 percent for next year.
As for the brackets, the government will gradually modify them over a two-year period. Finance Minister Alfonso Prat-Gay put this aspect of the initiative it in the slow lane because the fiscal impact of implementing it all at once would be a bit too much for the country’s shaky finances. “The government needs the reform to cost less than AR $27,000 million. The tribute is key for the state coffers: in October alone it collected 21.3 percent of all taxes brought in by the agency,” La Nación explains. We’ll see how next year’s sessions go.