This week, Argentine Secretary of Economy Roberto Lavagna sent to Congress a
bill proposing a 5% reduction in Income Tax. The problem is that this measure has been created instead of establishing a system of adjustment for inflation.The agricultural chain (producers, exporters, grain markets
and industrialists) is planning to present a complaint to national officials next week. The reason: the Argentine Department of Agriculture's denial in recognizing the effects of the recent devaluation and inflation on
balance sheets.
Rosario's Grain Exchange Market referred to a "hidden tax increase" and explained the serious damage the lack of an inflationary adjustment index can cause producers. "Considering that profits are
determined by the difference of states in assets and liabilities at the beginning and end of a fiscal period, inflation can generate –if balances cannot be adjusted- final existences higher to initial ones when the
truth shows that there may even have been losses.
This way, "fictitious profits" are being generated and are later absorbed by a governmental voracity," expressed the entity.
The actors involved speak of
"institutional gravity" and add this point to the list that includes many other topics: application of agricultural withholdings and a lack of implementation of financial and credit policies for the coming campaign.
To this must be added the fact that the minimal signs of reactivation, mainly in regional economies, are based on agricultural activities. Members of Rosario's Grain Exchange board sustained that "under these
circumstances, with the country's recovery and the creation of a small reactivation that includes the creation of new jobs, the untempered fiscal voracity translated into taxes on fictitious profits may represent a
tremendous blow similar to the tax increase that during the beginning of 2000 implicated the end of reactivation."
Keeping an Income Tax without inflationary adjustment will carry several negative consequences: an
increase of the fiscal load on Argentina's productive sector, which is a unique generator of genuine profits; a halt to the incipient economic recovery; lower resources for auto-financing producers' next campaign; and
installing the perception of a "confiscatory" attitude by the government.
The Argentine Rural Society, a major agricultural organization, expressed that "with this measure, rural producers are being unfairly
de-capitalized because they will pay taxes on a fictitious profit which results from the depreciation of our currency and not from true profit. Taxing fictitious profits, produced by a disorganized devaluation, limits
the possibility of keeping up with payment schedules and encourages late payments by contributors, considering that they don't count with the imaginary resources they are supposed to pay with."
The truth is that
agricultural producers will have to tolerate a new tax. Far form being rewarded, agricultural production is being punished with unfair taxes even though it is responsible for leading Argentina's economic reactivation.
And this surely stands out if we remember Argentine President Eduardo Duhalde's first speech, when he spoke of a new phase where "an alliance with the productive sector" would be privileged.
