Argentine provinces struggle to reach an agreement over tax reform, Fondo del Conurbano - Debtwire

Argentine provinces struggle to reach an agreement over tax reform, Fondo del Conurbano

15 November 2017 - 12:00 am

A group of 22 of Argentina‘s provinces is struggling to reach agreement on the proposals presented by the national government regarding tax reform and the province of Buenos Aires’s (PBA) claim over the ARS 50bn (USD 3bn) Fondo del Conurbano, said two sources close to the matter.

Governors of 20 provinces, including CordobaSanta Fe and Mendoza met today in Buenos Aires to discuss whether they will accept a proposal presented by President Mauricio Macri last week, which includes a request that the provinces cut or eliminate their gross income tax, said the first source.

This demand is one that many of the provinces, such as NeuquenRio Negro and Santa Fe, are not willing to endorse, the first source said. Gross Income tax is the most relevant source of funds for some of them, the source said. Around 70% of what the provinces collect in taxes comes from the gross income tax, the second source said. For PBA, eliminating the tax would reduce resources by ARS 15bn per year, out of a total of ARS 650bn estimated for 2018.

Macri’s government is asking governors to reach an agreement and respond to the proposal by Thursday 16 November, but after a six-hour meeting in Buenos Aires today, the provincial leaders were not able to reach consensus, the first source said. The different governors’ interests are not aligned on this matter, and it will be hard to see an agreement tomorrow, the source said. In the best-case scenario, some provinces will accept Macri’s proposal at this time and others won’t.

Governors were also debating whether they could agree on the proposed redistribution of the ARS 50bn funds held in the Fondo del Conurbano, the first source said. As reported, the Fondo del Conurbano is financed with 10% of what Argentina collects through income tax, and was originally created in 1992 to provide financing for PBA. However, in 1996 the national government capped the amount Buenos Aires receives at ARS 650m and decided to distribute the rest among the other 22 Argentine provinces, it was reported.

Last year, PBA governor Maria Eugenia Vidal requested the Argentine Supreme Court restore the fund to her province in its entirety, or at least give the province the 36% proportional allocation that would correspond to the province’s size, as reported. Now the national government and the governors are trying to negotiate a “political solution” to this claim, in order to avoid a Supreme Court ruling favorable to PBA that would leave the rest of the provinces in a difficult financial situation, the first source said.

Along those lines, last week the national government offered to change how income tax is distributed in the first place, the second source said. As of now, 10% of income tax goes to the Fondo del Conurbano, while 20% goes to national pension fund ANSES, 6% goes to the national Treasury and 64% is distributed among the provinces. The national government, following an idea from the governors, proposed to distribute 100% of the income tax among provincial administrations, said the second source.

Under that scenario, PBA would get USD 20bn in extra funds, it was reported. For the governors of the remaining 22 provinces, the impact of this modification would likely be neutral, said the second source. ANSES, on the other hand, would be financed with collections of 100% of a “check tax”, as reported.

Discussions are ongoing, and a deal with every governor is unlikely to be reached by tomorrow, the first source said.


by Clara Agustoni