The Minister of Economy, Luis Caputoannounced the reduction of the PAIS tax from 17.5% to 7.5% that will impact the commercial dollar for the imports of goods and freight. In this context, the companies described the measure as “positive” and assured that it will have an impact on a price reduction. However, they again stressed the need to end the exchange rate restrictions and regularize foreign trade operations.
“What we are going to do is to directly reduce the PAIS tax by reducing prices, trusting that it is a measure that will allow us to generate greater competitiveness and, above all, give more opportunity to customers and consumers to access the products. The reduction will be done instantly,” said a high-ranking source from a food company to Scope.
The announcement came at the right time: the market was expecting the reduction of the PAIS tax. In recent days, importers were delaying their foreign business while waiting for the measure to come into effect. The Government is seeking a reduction in prices that will help accelerate the process of disinflation.
Federico Vacarezza, Professor of International Trade at the Universidad Austral expressed his agreement with the measure, however he stressed that this tax was initially intended to be “temporary” and ended up causing “deep damage and distortions to Foreign Trade.” For Vacarezza, eliminating the PAIS tax “is an urgent and necessary measure.”
“The imbalance has reached such a magnitude that you first have to remove that tax and then gradually lift the restriction based on the availability of dollars,” he added.
How the reduction of the PAIS tax will impact: dollar, revenue and inflation
From the point of view of the dollarThis reduction in the rate will cause the import dollar to start at around $1,030, slightly above the “blend”, “which results in a “virtual” convergence between the import dollar and the “blend” (without an acceleration of the “crawling peg” of 2% m/m),” explained Delphos Investment.
Other points to consider are the demand for foreign currency, tax collection and inflation. For analysts, “there will be an immediate impact on tax collection, which will would fall by around $430 billion per month. This represents 5% of the national government’s tax revenue, which must be covered in the short term by additional income from income tax, the moratorium and money laundering.”
The second point they raise is that the demand for foreign currency “would increase in the medium term due to the relative cheapening of imports, which helps the slow but steady increase in activity. Additionally, in the official exchange market there is a lower demand from importers, who are waiting for the reduction of the PAIS tax to make their payments abroad, which “would boost demand for foreign currency in the official market in the short term.”
Finally, they highlight that the impact on price movement will be more “diffuse”. “The transfer to the retail prices of imported goods will take place over the course of days/weeks. In an intermediate scenario, The reduction in the CPI in September could be estimated at 0.5/0.6 percentage pointscollaborating with the disinflation process,” they explained.
The importers’ view
According to Marcelo Elizondo, Director of the International Economics Committee of the Argentine Council on International Relations (CARI) The direct impact is that the cost of exports will fall, which makes imports cheaper. “Argentina is experiencing a very low level of imports this year, with a very sharp drop compared to last year, of more than 20%.”
For Elizondo, Imports have been hampered by various means. While some are not corrected, such as high tariffs, others are in the process of being corrected, such as payment terms. The third point is the PAIS tax. “The reduction of the PAIS tax is very good because it allows access to capital goods, technology, and inputs for production in a cheaper way. The second impact is that it improves the capacity to produce. It also seems to me that there is an indirect advantage for exports, which is what makes Argentina more competitive and less closed, not only for imports but also for exports.”
From the Chamber of Importers of the Argentine Republic (CIRA), In an interview with this newspaper, they described this measure as a “necessary step, but there is still a long way to go.” In a brief statement, they highlighted that the reduction of taxes such as tariffs on raw materials, inputs or imported goods could have a positive effect on prices in the medium term. “Its impact is direct.”
They also say that there could be peaks in imports due to the postponement of nationalizations in response to the news of the reduction of the PAIS tax and not due to new imports. Finally, they say that there is “stock surplus and a demand that has not yet taken off” to see a growth in imports.
“Foreign trade needs to continue its path of eliminating distorting taxes, eliminating the exchange rate restriction, reviewing the costs and competition of logistics and ports, among other issues.”they concluded.
The word of the exporters
The Chamber of Exporters of the Argentine Republic (CERA) They highlighted to this media that the PAIS Tax is positive and represented a “non-recoverable loss for the exporter” and will also have a “very important impact on production costs throughout the economy.” However, they also called on the economic team to make other advances that would benefit the sector.
“On the path to gaining competitiveness, we have raised with Minister Caputo, with the knowledge of Minister Sturzenegger, the need to eliminate the additional restrictions that were imposed in 2022 on the recovery of VAT. We also hope that this central issue for production, employment and of course the generation of foreign currency, have the same response,” they pointed out.
Finally, they concluded that other issues to be put on the agenda are: “exporter incentive schemes through the elimination of duties based on historical parameters as long as their tax situation does not allow us to move further on their elimination. In addition, we must consider ways of recovering duties.” taxes such as debits and creditswhich cannot constitute part of the cost for the exporter because it puts him at a disadvantage with the international legislation and practice applied by our competitors.”
In short, both sides welcome the new measure. The next step for each side will be to normalise the exchange market, a central issue for economic recovery but one that will remain, perhaps, until 2025.
Source: Ambito
