The proposed bill lowers the tax burden of individuals but increases taxes for companies.

On December 6, 2016, Argentina’s Federal Hose of Representatives voted in favor of a bill that reforms the current Income Tax Law to reduce Income Tax payable by employees. After years of high inflation, tax scales became distorted and even low and medium income employees had to pay income tax at the maximum rate. Argentina’s Executive Power presented a bill to the Federal Congress, but opposition parties joined last night in order to vote for a bill that provides for greater tax cuts for employees.

The bill will be considered by the Senate next week. It must be noted that, if approved, the Executive Power has constitutional power exercising a veto.

To finance tax cuts on employees, the bill that was approved by the House of Representatives creates new taxes or creates mechanisms for taxing new activities and reaching new taxpayers, as follows:

1. Financial profits. The bill provides that the distribution of dividends or profits by Argentine companies would be subject to an Income Tax withholding at a tax rate of 10% over the total amount of the dividends or profits paid or distributed.

2. Value Added Tax (“VAT”). According to the bill, taxpayers contracting services rendered by foreign residents must act as substitute taxpayers for VAT purposes. The relevance of this is that currently there are many activities that in theory are subject to the payment of VAT in Argentina, but cannot be taxed because the taxpayer is out of the authorities’ reach. This reform will force the Argentine party to withhold such taxes on behalf of its foreign counter-party. This is particularly relevant for the supply of services such as construction, engineering or consulting.

3. The bill:

1. sets a Presumed Income Tax to gaming companies. The tax rate would be the 10% of the value of the slot machines; and
2. sets a tax on electronic gaming. The tax rate would be 7.5% of the net income

4. The bill reestablishes export duties for the mining sector. The Executive Branch shall set the applicable tax rates.

5. Currency futures. The bill sets a tax of 15% of the profits obtained from currency future transactions (if positive). No deductions will be allowed. This tax would be only applicable for income (i) obtained in 2016 for individuals or (ii) accrued in the fiscal year in which the Bill enters into force for corporate taxpayers.

6. Unproductive real estate. The Bill sets a special tax on unproductive real estate in Argentina or abroad owned by Argentine residents or investment vehicles incorporated abroad owned by Argentine residents. The applicable tax rate would be 0.75% of the value of the real estate property.

7. Benefits for individuals. The bill:

1. increases personal deductions for taxpayers and their dependents, and sets special deductions for disabled persons and renting.
2. exempts from Income Tax the remuneration received by employees for productivity and extra hours, and the annual complementary salary.
3. updates the applicable tax rates to compensate for the effect of inflation. The bill sets a mechanism in order to update this scale in a yearly basis.