A tax specialist suggests a mini RIGI for Mendoza.

Tax specialist Ricardo Paolina—senior partner at Lisicki, Livtin & Abelovich—was in Mendoza to give a talk at the Industrial Union of Mendoza (UIM) . In an exclusive interview with Los Andes , he discussed the current fiscal situation and the importance of reducing the tax burden. to reduce the additional costs Argentine companies face when competing globally. In this context, she also met with the Minister of Production, Rodolfo Vargas Arizu , to exchange ideas regarding the investment incentive program RIGI . "This plan will have an impact in Mendoza, since mining is a task this government is undertaking and could be an important resource for the province," Paolina anticipated.

The expert noted that the RIGI will yield significant results in terms of investments and expressed that there has been a change in the federal revenue sharing system, but an adequate response has not yet been provided. "There are highly distorting regimes, such as the Gross Income Tax, but for the provinces it is their main source of revenue," the specialist noted. Within this framework, he conceded that it is not easy for governments to lower this tax, as it represents between 70% and 90% of total revenue collections. "Reforming it implies taking safe steps, because otherwise the provinces would be underfunded," Paolina commented, adding that doing so requires broad agreements and planning.

The professional, who gave a talk on current tax issues and strategic information for decision-making alongside Noelia Roggerone, noted that the difficulties of this tax are related to the fact that it is present at every stage of production and, each time, it must be charged to the price, with the resulting distortion. "This cumulative cost is paid by the consumer who pays for a product at a higher price than the one available on the international market," Paolina pointed out. At the national level, withholding taxes and taxes on credits and debits are also highly distorting. For this reason, although the nation must implement tax reform, it would be worthless if the provinces and municipalities do not support it.

"Argentina has been completely distorted by the national, provincial, and municipal burden we face, and this has forced companies to make decisions that are beyond the scope of production," the professional commented. Regarding Argentina's notorious cost, Paolina noted that it's not just a matter of reducing or modifying the aforementioned taxes; rather, it will require reaching major agreements. If tax reforms are the only way to achieve these goals, the changes will be half-baked.

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And she exemplified: "SMEs need to reformulate the current labor regime, and perhaps it's not just about employee costs or social security." The fact is that the litigation industry, the uncertainty that an SME entrepreneur feels when hiring people knowing they may later face illogical claims, which have been upheld by the courts, also distorts any activity. "There are too many inefficiencies, and that makes the costs very high," Paolina noted.

The private sector is awaiting a tax reform implemented by Congress to equalize the burdens between the opening of imports and the reduction of production costs in the country. Meanwhile, the professional emphasized that the so-called SME law, or investment promotion law for projects under $200,000, could be implemented in two ways. "Perhaps we should work on SME companies that will be linked to large RIGI projects," Paolina commented. She added that for suppliers to these industries, some reduction in the tax burden could be considered to bring costs in line with those of the competition.

"I think the province of Mendoza could have its own RIGI (Revenue and Tax Administration), including Gross Income, Stamp Duty, Real Estate, and Motor Vehicle Taxes," Paolina commented, referring to the upcoming mining projects. She added that this could have a significant impact, and that municipalities should also support investment promotion. This way, while transformations that may take more time or require greater consensus are taking place at the national level, changes could be driven from Mendoza or other regions to encourage the influx of capital.

Another debt that would impact the reduction of Argentine costs and that can be addressed at all three levels (provincial, national, and municipal) is tax reductions in financing. "One of the issues being raised today is the lack of trade reactivation, and for that, financing is needed," the professional emphasized. He explained that one way to achieve this is to allow purchases to be made in installments at convenient and appropriate rates, since if the installment payment is too high, the amount is not used.

ATM Tax Administration Mendoza

Financing is determined based on many components, Paolina explained. Thus, in addition to the risk of default and inflation, there are taxes that raise the price of loans. "If you add the 21% VAT, the 5% imposed by some provinces, and what the municipality charges to these rates, financing becomes too expensive," commented the partner at the Lisicki, Livtin & Abelovich firm. He added: "This tax is paid by the end consumer, the one who needs to buy, so it's necessary to demand it and understand that it's a key element for the country's recovery."

Regarding the possible reactivation, Ricardo Paolina also referred to the national government's plan to encourage Argentines to spend the dollars they have stashed under their mattresses. In this regard, he stated that the government's plan is "very good," but that Argentines must overcome their fear after a disastrous history of government noncompliance. Among other things, we can mention the receipt of dollars during the Duhalde era or the losses of those who invested in AFJP pension funds. "The government has a plan in which the dollar won't rise, so saving them would not be productive or useful," the professional stated.

In this regard, she stated that the program has two pillars. One is related to gaining taxpayers' trust, since in recent years "their private lives have been violated." This is because, in addition to paying their taxes, the State had "informants" at all levels (banks, notaries, schools, etc.). By reversing the burden of proof, and as long as people pay their fair share, Argentines should gain trust and gradually invest their dollars. "The tax authorities will focus on large incomes and not on the private lives of taxpayers," Paolina stated, adding that she will not relinquish the power to question certain issues.

The second leg of the program involves encouraging people to "launder" their savings—generally legally acquired but hidden due to exorbitant taxes. This requires a change in the tax criminal law, a bill already before Congress. "It's time to create the conditions for the existing informal economy to be formalized," Paolina stated. She added that the change will be significant, as companies had to raise their guard due to the voraciousness of the tax authorities, which meant many had outstanding balances. "There is a debt owed to the work of companies because we are suffocating them financially and economically," the professional reflected.