Tax amnesty to charge as much as 8% in penalties
AFIP tax bureau will charge between three and eight percent as a penalty for evasion
Amid a shortage of dollars and decreasing foreign-currency reserves at the Central Bank, president-elect Mauricio Macri will try to entice Argentines with undeclared assets and foreign currency to take part in a new tax amnesty programme that will charge between three and eight percent as a penalty for tax evasion.
AFIP head Ricardo Echegaray will be replaced by his former boss Alberto Abad when Macri takes office on December 10 and one of his first plans is to help bring in as much hard currency as possible. The only requirement to participate is to have been registered with AFIP for at least two years.
Macri’s tax advisers have already written up a draft measure following the same guidelines of the tax amnesty carried out in 2008, imposing a specific tax rate depending on what will be done with the cash.
Those who bring their cash back to the country will receive bigger tax breaks than those who choose to keep it abroad.
Citizens with assets or foreign currency abroad will pay an eight percent tax next year if they don’t bring them into the country, a figure that will inch up to 10 percent in 2017. Nevertheless, if they choose to bring those assets into Argentina and keep them in the country for five years, the tax burden drops to five percent next year and 6.5 percent in 2017, according to the draft.
Those with funds abroad or in the country that are later used to buy bonds will pay a four percent tax in 2016 and 4.5 percent in 2017, while those who instead buy a government bond will face a thee percent levy next year and 3.5 percent in 2017. The same will be the case for citizens that use the funds to buy a real-estate property.
“Funds held by Argentines abroad represent an important source of additional resources that haven’t been exploited yet due to the country’s economic instability over the last decade. This context explains the behaviour of Argentines who chose to transfer their savings to other countries and under other legislation,” the draft, to which the Herald had access, reads.
By taking part in the tax amnesty, citizens won’t have to pay fines, interests nor penalties on the undeclared assets and will only be asked by AFIP to change the previously submitted affidavits. Starting on 2017 after the initiative concludes, they will have to start paying taxes normally for the funds that were involved in the scheme.
Argentines are estimated to hold US$400 billion in tax havens, so repatriating at least a part of those funds would help to ease the current hard currency shortage.
The tax amnesty would replace the current existing programme, which will end in December with poor results. Of the US$4 billion the government expected to collect in three months, only US$2 billion were raked in after two years through the Cedin certificates and the BAADE bonds.
The scheme was created in June 2013 and has been extended eight times times since then. Two instruments were created for those seeking to legalize undeclared cash: the Argentine Bond for Energy Development (BAADE) and the Cedin, a certificate of deposit that can be used for real estate transactions.
“The fact that a large part of the funds aren’t declared discourages people bringing them into the country. That’s why it’s convenient for the state to decline the fiscal actions destined to collect part or all the taxation rights,” the draft reads. “The whole society benefits from this initiative thanks to the higher investment rate.”
Abad back in office
This will be the second time Abad, a University of Buenos Aires economist, holds the role of AFIP chief after leading the bureau from 2002 to 2008. He resigned back then after deep disagreements with Echegaray, who was the Customs Director at the time. Echegaray then ended up replacing Abad.
During his first term in office, Abad improved AFIP’s technology systems and was able to increase the country’s tax collection rate. He purchased scanners for customs, carried out initiatives to decrease tax evasion and offered payment plans with installments for taxpayers with debts, among other aspects.
“He is a professional with lots of experience who had done a good job when he was the AFIP head. It was a good choice,” César Litvin, tax expert and head of the Argentine Tax Institute, told the Herald. “He will face the need to improve customs controls as well as changing the image that taxpayers have of AFIP.”
Dollar shortage, main challenge
The likelihood of a sharp devaluation when Macri takes office has led to an across-the-board increased demand for dollars, forcing the Central Bank to sell US$1.8 billion so far this month to maintain the peso stable. Foreign-currency reserves have already receded by US$1.2 billion in November, ending last week at US$25.754 billion.
The high demand for dollars for saving and tourism purposes and debt payments are some of the factors that explain the reduction, with people seeking to anticipate to a weaker peso. So far this month, US$697 million have been sold in the dollar for savings programme, only US$5 million short from the record reached in October and easily exceeding the US$403 million sold in the same month last year.
