In the papers, the Value Added Tax (VAT) is neutral: it taxes consumption and should not affect the profitability or decisions structure of economic agents. But in practice, this neutrality vanishes when we analyze its impact on complex productive sectors such as pigs, where the structure of costs and differentiated aliquots generate a technical balance in favor that transforms into a heavy financial load.
Since 2018, the pig sector taxes a 10.5% reduced aliquot for the sale of feed capons and fresh cuts without industrial processing. This measure, which sought to combat evasion and reduce consumer prices, failed in its market objectives but introduced a harmful collateral effect: it left producers trapped with VAT technical balances that cannot recover or apply effectively.
The cost structure of a pig farm clearly reflects the problem. About 70% of the total cost corresponds to animal feed, input that taxes 21% VAT. If 12% of other taxed costs are added, 82% of expenditures are reached by the full rate, while income (the sale of the pig) is taxed at 10.5%. This difference generates, every month, a balance in favor of $ 77.91 per kilo of pork sold. But those tax credits cannot be easily applied or used as working capital.
The impact is not only financial, but strategic: so that this balance is absorbed in the productive circuit, the producer should have margins greater than 14%. A requirement that becomes unfeasible for many small and medium breeders, especially in a context of macroeconomic volatility, high interest rates and fall in internal consumption.
The situation is further aggravated when it comes to investments. Producers must pay a 19% VAT for capital goods, while their meat income is taxed at a 10.5% rate. That difference is never recovered or charged. In fact, it is money that is immobilized in the balance sheets and that represents a direct discourage to invest.
If that capital remains in the hands of the sector, matching aliquots or allowing its return, the activity could grow at an annual rate of 10%. This expansion is not a simple hypothesis: the technical data indicate that 15,000 productive mothers per year could be incorporated, which implies an injection of 90 million dollars annually in the economy, since the investment per mother is around $ 6000. That is, there is a clear opportunity for productive development that is being blocked by a structural failure of the tax system.
Distortions
The scheme also generates distortions in the industry. While the chacinadores refrigerators benefit from buying raw material with reduced aliquot and selling processed products such as cold cuts with an aliquot of 21%, fresh meat – the most consumed product and the one that generates the most employment – is marginalized of that balance. The result is an ecosystem where the incentive is put in the link with greater tax profitability, and not necessarily in the most strategic from the point of view of national production and employment.
The solution does not happen to go back with the reduced aliquot, but by thinking about a system that compensates for its unwanted effects. There are several alternatives to do so. One is to allow technical balances to be used to pay fiscal and social security obligations, or that can be computed as deductible costs in the income tax. Another, more structural, is to incorporate into the pig sector within a regime similar to the RIGI (incentive regime for large investments), where VAT associated with investments can be reinstated through transferable tax certificates and free availability.
This last option would prevent the producer or industrial from having to immobilize own resources or indebted to cover a tax that, in essence, should not be paid. In addition, it would allow to boost a sector that has strong export potential, great capacity for aggregate of value and employment generation in regional economies.
The Argentine economic agenda needs more intelligent and less punitive fiscal policies for production. The VAT case in the pig chain is a clear example of how a well -intentioned measure can have adverse consequences if it is not thought in terms of system. Resolving this knot would not only relieve the producer, but would release investment capacity and genuine growth. Pork, beyond being an accessible and healthy option for consumers, can also be a development engine if it is allowed to grow without unnecessary tax obstacles.
President of the Argentine Swine Federation
Source: Ambito
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