Argentina Ends 5 Percent VAT Rebate on Debit Cards

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By David Haskel

Argentina’s government has put an end to a 5 percent value-added tax refund on debit card purchases, saying the move will help it save some $375 million a year that can be used to help the poor.

The rebate was first implemented in 2001 on a yearly basis and has been renewed every year for a 12-month period.

The rationale behind the move was that it would help boost the use of bank products in a country where checks are a rarity and where cash is typically preferred over credit and debit cards or other means of payment.

But the new treasury and public finances minister, Nicolas Dujovne, said it was discontinued from Jan. 2 because of its distortive effect of favoring the most affluent sectors of society.

“What we had in place was a subsidy to debit card users, and as such it was not very efficient in terms of equality,” he told the Buenos Aires daily La Nacion in an interview published Jan. 3. “Lower-income sectors do not use debit cards as much as middle- and high-income sectors do.”

He said the government is still keen on promoting the use of electronic money and other forms of non-cash payments.

Check Tax to Be Scrapped?

“None of those have the benefit of a VAT rebate,” Dujovne said. In that context, having a means of electronic money with reimbursements, which others do not have access to, could be counterproductive, he said.

The minister added that he would seek to overhaul Argentina’s tax system, but provided no details, saying he just took office. President Mauricio Macri made him minister Dec. 26, succeeding Alfonso Prat-Gay.

Dujovne also censured the so-called check tax, a 0.6 percent levy on bank deposits and extractions also implemented during a major financial meltdown in 2001.

The check tax—which has come under heavy criticism from business players over the years—undermines government efforts to broaden the base of people within the formal financial system, he said. However, the minister stopped short of saying if or when it would be scrapped.

Alberto Abad, head of Argentina’s tax agency—the Federal Administration of Public Revenues (AFIP)—said the VAT rebate cost the government 6 billion pesos ($375 million) in 2016.

The savings will free up funds for other more pressing needs, such as raising the minimum monthly wage to pensioners or increasing benefits to low-income workers with children, Abad told reporters.

Business Chambers, Opposition Blast Move

While efforts to bring more people into the banking system must continue, from now on this will be pursued without a need to sacrifice revenues, the AFIP head said.

However, at least two chambers representing small and mid-sized enterprises and some opposition politicians lashed out at the decision, saying it would be bad for business and favor tax evasion.

Argentina, which had 30 percent-plus inflation in 2016 and whose currency has suffered major devaluations over the years, has traditionally favored cash transactions that as often as not go unreported by vendors, who fail to provide receipts in order to dodge taxes.

Against this background, “the move discourages formal operations in a milieu where illegal sales continue to grow out of control,” the Medium Sized Enterprise Confederation (CAME) said in a statement. Additionally, “any cut in incentives to consumers is relevant, bearing in mind that retail sales dropped 7 percent year-on-year over the past 12 months,” it said.

The Small- and Medium-Sized Entrepreneurs Association (APYME) said in a statement that Argentina’s SMEs would be particularly affected as they depend on domestic sales. In addition, the move will hurt the income distribution balance and encourage a “regressive and inequitable scheme.”

A former economy minister and current congressman for the opposition Victory Front Party agreed.

“By taxing consumption, they are making those who have less pay more,” said Axel Kicillof. Besides, the decision proves that the government is not seriously interested in promoting the use of banking services, he added.

To contact the reporter on this story: David Haskel in Buenos Aires at correspondents@bna.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bna.com

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