How much is expected to be May inflation in Argentina 1:00

(CNN Spanish) -- The Tax for an Inclusive and Solidarity Argentina —known as PAIS tax— is paid on some operations with foreign currency in Argentina. It was introduced by the government of Alberto Fernández in February 2020 and is in force for a period of five fiscal years.

Of the proceeds, 70% is allocated to programs under the execution of the National Social Security Administration (Anses) and the Comprehensive Medical Care Program (PAMI), while 30% must be used to finance social housing works, infrastructure, tourism promotion and others, according to the Federal Administration of Public Revenues (AFIP).

Professor César Litvin, CEO of Lisicki, Litvin and Associates, explains that "the objective of this tax was to discourage the purchase of foreign currency and the consumption of goods and services that are paid in foreign currency." It adds that the measure aimed to "protect the reserves of the Central Bank, making access to the exchange market more expensive and thus prevent the exit of 'cheap' dollars for the purpose of hoarding or non-essential consumption."

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The tax expert Daniel Lejtman adds that "the tax arose as a discouragement to carry out operations in foreign currency from the lack of foreign currency that the Government began to suffer at the end of 2019.

To which operations does the PAIS tax apply?

The tax was created by Law 27,541, which declares the public emergency in economic, financial, fiscal, administrative, social security, tariff, energy, health and social matters and empowers the Executive Branch to carry out the necessary steps and acts to recover and ensure the sustainability of the public debt.

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The levy covers different transactions, such as:

  • The purchase of foreign currency to save. The measure reaches traveler's checks.
  • Purchase of cultural and recreational products or services in foreign currency and import of goods.
  • Foreign currency exchange in financial institutions.
  • Payment of services abroad contracted through local travel and tourism agencies.
  • Payment of passenger transport services with international destinations, except to neighboring countries.

The rate is 30% in the case of the purchase of foreign currency, debit and credit card expenses in foreign currency and tourist services abroad. While for digital services, such as Netflix, YouTube Premium or Spotify, for example, it is a reduced rate of 8%, explains Lejtman.

Argentine pesos and one US dollar.

Who is exempt from the PAIS tax?

"In principle, there are no people exempt from paying it, although there are expenses in foreign currency that are excluded from the tax," says tax expert Daniel Lejtman. It refers to some medical benefits and educational services, in addition to land tickets to neighboring countries. Foreigners are not covered by the tax.

Is there a refund of the PAIS tax?

The accountant Sol Sarquis, from the Sarquis & Sarquis studio, explains that "there is no type of refund of this tax". He adds that "many may confuse it with the perception of income tax of 35%, or currently 45% and 25% on account of personal property tax, of which a refund can be requested." Litvin adds that "it is only returned in case of a payment without cause."

Criticism of the PAIS tax

Specialists agree that the tax does not fully meet the objective of discouraging transactions with foreign currency and brings several negative effects such as the increase in the price of products and services, in addition to the widening of the exchange gap in Argentina.

Sarquis argues that "many times these measures do not achieve their objective of lowering the consumption of foreign currency, but only end up having a collection purpose, generating a floor of exchange gap that then ends up affecting the normal functioning of the economy."

Along the same lines, Lejtman points out that "although the intention was to discourage operations in foreign currency, given the obvious lack of foreign currency, the recipe used was the same as always and, worse, the desired objective was not achieved."

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For Litvin, the PAIS tax has a distorting character "because it does not measure the contributory capacity of the subjects who pay it. That is, it does not distinguish between rich and poor, anyone who needs access to foreign currency or goods or services that are paid with them, must pay the tax. "

And he adds that the objective of protecting the Central Bank's reserves was not met. "The only condition and incentive for Argentines to save in local currency requires solving the endemic problem of inflation and that we return to having a currency that generates confidence. A tax on the acquisition of foreign currency will never reverse this fundamental and structural problem," he says.

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