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Argentina’s new tax plan aims to solve investment problem

New tax laws complicate the government’s short-term fiscal challenge; credit negative for banks because of increased funding costs.

Lack of investment has been the key problem to the success of Mauricio
Macri’s economic plan

President Mauricio Macri is pushing ahead with his attempts to reform the Argentine economy after his strong performance in the country’s mid-term elections.

The government’s proposed tax reform is the central policy driver for this economic improvement and, while analysts say it could invigorate growth, it could also complicate his finance team’s attempts to shrink the fiscal budget.

It also has some negative impacts for the profitability of Argentina’s banks.

The main change includes a gradual reduction in the corporate tax rate to 25% from 35% over four years and the lowering of employer social security contributions, as well as the introduction of new taxes on investment income for individual investors and on corporate dividends.

These reforms could lower tax receipts in the short term, although if they spark investment and economic growth the negative impact could be short lived – especially as the law also aims to improve the efficiency of the revenue service.

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