Analysis: With no tax evasion, Argentina’s tax burden on families would be higher than in EU countries

RIO DE JANEIRO, BRAZIL – “We want to promote productive investment that generates employment and thus ensure that the recovery reaches every Argentine family. This path requires, first and foremost, to continue promoting the growth of the domestic market. And for this, the State must be capable of boosting aggregate demand (…)”

“It is also necessary to follow the path of the reorganization of the State’s accounts, but never at the cost of an adjustment of expenditure”. These phrases were said by Alberto Fernandez last Sunday when announcing the submission to Congress of a “multiannual” plan, the basis for an eventual agreement with the IMF.

The explicit presidential renunciation to adjust public spending implies that the Government will continue to increase the tax burden after having created or increased between 14 and 19 taxes -depending on how the account is done- and suspended almost all the benefits of the fiscal agreement of late 2017, by which the provinces committed to reduce “Gross Income”, a distorting and “cascading” tax, while officials promote another “tax”, now on packaging, of supposedly environmental purpose.

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In mid 2020, the “Argentine tax vademecum” compiled by the Argentine Institute of Fiscal Analysis (Iaraf) already counted 165 taxes and fees between the Nation, Provinces and Municipalities, of which 11 account for 90% of the total tax revenue.

Now, an ongoing study by the Ieral of the Fundación Mediterránea shows that if it were not for evasion, Argentina’s tax burden already exceeds that of European countries with high taxation, such as Spain and Italy, that of neighbors such as Chile and even, if we exclude various types of “VAT” applied by some Brazilian states, that of Brazil.

The study analyzes the tax burden on families and companies in 5 countries and 9 municipalities in Latin America and Europe, distinguishing the “effective” tax burden (tax collection as a percentage of GDP) from the “legal” one, which results if companies and families pay all taxes, without evading even partially any of them.

This is a pertinent question, since the argument -often put forward by those who attribute to public spending the virtues of social equalizer and engine of growth- that the “effective” pressure is higher in some European countries ignores the fact that the services that the respective states provide in exchange are of higher quality than those of the Argentine state (as reflected, for example, in the results of the PISA education tests) and that a lower effective pressure often results from avoiding at least part of suffocating legal pressure.

The study, headed by economist Marcelo Capello, found that Argentina’s effective tax burden has risen by nearly 12 points in the last 20 years and is among the highest in Latin America, along with Brazil. Worse still: “distorting” taxes, such as export duties, check tax, gross income (provinces) and health and safety taxes (under different names) applied by municipalities, amount to almost 8% of GDP.

To determine the true tax burden, the study assumed zero evasion: companies and families pay absolutely all national, provincial and municipal taxes and fees in 9 municipalities in 5 countries: CABA and La Matanza in Argentina, Brasilia and São Paulo in Brazil, Santiago in Chile, Madrid and Barcelona in Spain, and Rome and Milan in Italy. The ongoing project will also include cases in Australia and the United States.

With the help of economists Agustín Cugno, Francisco Santinelli, Nicolás Cámpoli and Jonás Alvarado, Capello studied the taxes applicable in each case to an industrial and a service company and to three “typical” families, one poor, one middle-middle class and one upper-middle class.

For the companies, the study assumed the payment of Gross Income, Health and Safety Taxes in two rounds, purchase of inputs and raw materials, and then VAT, Personal Contributions, Employer’s Contributions and Income Tax on the “value added” of the productive process.

TAX SLAUGHTER

Thus, for an industrial company of household appliances, the tax burden in CABA and La Matanza is lower than in Brasilia and São Paulo and higher than in other cities and countries. But if VAT is excluded, the pressure on a company located in the districts of La Matanza and Buenos Aires is higher than that of a similar firm in any of the other municipalities and countries considered.

In order to specify the “legal” tax pressure on families, the study assumed 3 types, although in all cases of 4 members, two adults aged 35 and two under 18. A poor family earning the “Salario Mínimo Vital y Móvil” (ARS 31,104) in Argentina or its equivalent, another one earning the formal average salary (RIPTE, $ 87,619) and another one earning 3 times the average (ARS 211,600). The situations, of course, are not similar: for Argentina (average of CABA and La Matanza) the per capita income is US$ 8,547 per year, for Brazil US$ 7,011; for Chile US$ 14,137, for Spain US$ 27,057 and for Italy US$ 31,676.

NOT ALL FAMILIES ARE EQUAL

In addition, it was assumed that the spouse receives additional income based on data from the Permanent Household Survey. Other assumptions are that the poor family has no car, the middle-middle has a 2014 Gol Power and the upper-middle has a 2020 Focus Titanium, and they live, respectively, in 1-, 2- and 3-bedroom apartments in the center of each district. Other assumptions have to do with savings and consumption structure, according to data from the Indec Survey.

The results show that, in addition to a high tax burden on companies, Argentina applies a strong pressure on households. As can be seen in a graph, in La Matanza and CABA, in case of paying all taxes, families preserve as “disposable income” a maximum of 56.5% of their gross income, well below the two thirds they preserve in Santiago de Chile, Madrid and Barcelona and even the 57% that a poor family preserves, in their respective contexts, in Rome and Milan.

Taxes on labor, such as personal contributions, and on consumption, such as VAT, are the lion’s share of the State’s share of family income.

Capello explained to Infobae that for the calculation of the “legal” tax burden, since the “elasticities of demand” were not known, it was assumed in all cases that companies pass on the entire tax burden to families, so the resulting value is the maximum for the 9 municipalities and 5 countries in the exercise.

Calculating the “legal” tax burden in each Argentine locality is an extremely complex exercise. In the middle of last year, a study by the Congressional Budget Office (OPC) surveyed 5 productive activities in 30 localities, detecting that some of them had to pay up to 41 national, provincial and municipal taxes.

The Ieral study serves to ratify, at the level of the main urban centers of countries with which Argentina is usually compared, that the “legal” tax burden is already high, although the Government believes it can continue to increase it.

With information from Infobae