He Minister of Economy, Luis Caputoseeks that the reduction of the PAIS tax from the current 17.5% to 7.5%will take effect from September, in part, with the aim of lowering inflation below 4%, a floor that the market sees as difficult to break through, but it will not be the only impact that this measure will have on other financial variables, such as tax collection, the Central Bank (BCRA) reserves and the dollar.
It happens that, as he explains Pedro Gaite, chief economist at the Foundation for Development Research (FIDE), “In terms of inflation, it could be positive if the prices of imported goods fall” and that it is a measure aimed at normalizing the functioning of the economy, which he considers a necessary issue, but warns that, “given the number of macroeconomic imbalances that exist, its implementation could be detrimental because the problem is the general sustainability of this exchange rate regime, mainly, the “crawling” of 2%.”
In the same sense, Eco Go economist Lucio Garay Méndez He points out that “eliminating the PAIS tax is a big step towards exchange rate normalization and prior to lifting the restrictions.” He also comments that there is a possibility that some prices will fall, given that the tax would no longer be paid and that is an additional downward push that inflation may have, due to a fall in the value of imported goods. However, he warns that it represents 5% of the collection and a higher percentage of the nation’s income, so if the other taxes are not recovered, the Government would be forced to further adjust public spending.
Fiscal impact: does a recessionary context allow for a reduction in the PAIS tax?
In that sense, Gaite points out that “the strongest impact will be in revenue collection because the PAIS Tax represents 6% of the total collection and removing or reducing it would further strain the fiscal situation in a context in which taxes linked to economic activity are seen to be falling sharply.”
And as he points out, Aldo Abram, director of Freedom and Progress“Raising the PAIS tax could cost the state around $2 billion and that will put strong downward pressure on tax collection.”
On the income side, there is also a complex situation because the activity is in a recessionary period. In this sense, Economist and director of Epyca Consultores, Martín Kalospoints out that “the Government is delaying the exit of the PAIS tax because it is waiting for a recovery in revenue through another means, but the problem is that “Activity will continue to be depressed in the domestic market”.
Kalos points out that The only sectors that will continue to grow are the agricultural export sector and the mining and hydrocarbon sectors.. “In that context, what will happen is that it will be very difficult to compensate for what will stop being collected with the PAIS taxalthough some of the money laundering and the restitution of profits and the fuel tax will help to compensate,” he says.
Impact on BCRA reserves due to imports
Another delicate point that is at risk with the reduction of the country tax are the BCRA reservesGaite points out that the impact is also “worrying” because Argentina’s main problem is the shortage of dollars and the exchange rate is lagging. “The reduction of this tax will further appreciate the import exchange rate and that will put more pressure on the Central Bank’s dollar foreign exchange power“, he details.
Abram points out, on the other hand, that this decision “will boost imports and will make the process of collecting dollars more complex for the BCRA.” Because, as explained by Eco Go economist Lucio Garay Méndezwhile moving in that direction “would reveal what the true demand for imports is, given that today they are distorted because the tax increases the price, on the other hand, “by lowering the price of the currency for importers, the demand for imports increases demand for US dollar bills and that means that the Government accumulates fewer reserves.”
This is a worrying fact in the face of some complicated years in terms of foreign currency maturities and, even more so, without the possibility of refinance the debt with a closed external market.
Dollar and tourism, a loose end
An element that remains “in the air” is What will happen with the PAIS tax in the case of the dollar for tourism?Gaite believes that “they will not touch it,” but warns that, if they do, it would be risky because “it would encourage the outflow of dollars through that route, which is something that has been seen with the rise in the exchange rate” and, she anticipates that, if the gap increases and the financial dollar approaches the tourist dollar, the situation would worsen.
Along the same lines, Rodriguez points out that There is a risk that the tourism deficit will worsen, In short, it will deepen the weakness of the external sector, further postponing both the objective of accumulating reserves and the situation of strength to get out of the currency controls without any problems.
On the other hand, regarding the dollar, Abram believes that “It will not change the Government’s monetary strategy”“, although he says that “it is possible that it plays in favor in terms of risk perception and helps in terms of the evolution of the parallel dollar due to a question of expectations.
Reduction of the PAIS tax: a risky move by Caputo
So, Economist and director of MyR Consultores, Fabio Rodríguezsummarizes that there are three key levels in which the PAIS Tax: the prosecutor, due to the loss of resources; inflation, due to a decrease in the price of dollar-dependent goods, and the reserves of the BCRA.
“I think that They take the measure with the anti-inflationary objective as a key axis because they aim to have the cheapening of the dollar for imports“, he points out. And he believes that the Government “is betting on being fiscally neutral due to improved activity and greater resources, plus some money laundering,” diagnoses the analyst.
At this point, however, he warns that they underestimate the impact on reserves and points out that it must be taken into account that “The ratio of paid to accrued imports will rise significantly in October“.
Source: Ambito
