Argentina’s Senate approved a wealth tax to pay for relief measures and medical supplies needed to deal with the COVID-19 pandemic that has sickened almost 1.5 million Argentines and killed nearly 40,000 since January.
The Senate passed the wealth tax, a one-off progressive tax on global assets, 46-26 December 4, according to local reports. It is estimated that the tax will affect 10,000 to 12,000 individuals with assets valued at more than ARS 200 million (about $2.5 million).
The legislation — which passed Argentina’s lower house November 17 — will apply to Argentine assets valued between ARS 200 million and ARS 300 million at a rate of 2 percent. The tax rate will rise in increments of 0.25 percentage points until it tops out at 3.5 percent for domestic assets worth over ARS 3 billion. For assets held abroad by Argentine residents, the tax rate will range from 3 percent to 5.25 percent.
Carlos Caserio, president of the Senate’s Budget and Finance Committee, emphasized that the tax will only be charged once. “It is a contribution that we request from the wealthy and high-net-worth individuals in the country,” he was quoted as saying in Argentine newspaper El Universal.
Caserio, a member of the ruling political party Frente de Todos, said that according to a report from Argentina's Congressional Budget Office, the tax could raise ARS 420 billion. Other estimates put the amount closer to ARS 300 billion.
The wealth tax will be charged in addition to the annual personal assets tax, which applies to total assets worth over ARS 2 million, excluding savings accounts and term deposits held at Argentine banks. That tax ranges from 0.5 percent for assets over ARS 2 million to 1.25 percent for assets over ARS 18 million, while foreign assets owned by Argentine residents are taxable at progressive rates of up to 2.25 percent.
Pablo Roberts, a managing partner at CROZ Tax and Legal in Buenos Aires, told Tax Notes that because the personal assets tax and new wealth tax share a taxable base, the new tax could be unconstitutional. It more than doubles the personal assets tax rate for individuals with assets valued at more than ARS 200 million, he said.
“It is confiscatory; it discriminates between assets in the country and abroad; it applies to assets that are no longer part of the taxpayer's assets, and to some subjects who have ceased to be taxpayers,” tax lawyer Diego Fraga of Richards, Cardinal, Tutzer, Zabala & Zaefferer Abogados told Tax Notes in November, after the law passed the Chamber of Deputies.
Local assets held by Argentines living abroad are also subject to the new wealth tax, Roberts said, and residency for the new tax is determined by an individual’s residence as of January 1, 2020. That means a person who moved out of Argentina after January 1 must still pay the one-time wealth tax on assets owned in Argentina and abroad for the 2020 tax year, he said. Argentine citizens living abroad are only subject to tax on assets located in Argentina.
The government plans to use 20 percent of the tax revenue for medical supplies related to COVID-19; 20 percent for relief measures for small and medium-size businesses; 20 percent for student scholarships; 25 percent for natural gas ventures; and 15 percent for social development, according to the AFP news agency.
Roberts pointed out that while the new tax was marketed as a “solidarity tax” to help the country recover from the health and economic effects of the pandemic, only around 20 percent of the tax revenue is going toward direct medical aid.
“In terms of the idea of this tax, many people think that this is more something to go against rich people and make a political statement in favor of poor people, rather than a real tax,” Roberts said. He added that politicians favor the tax because it enables them to give housing and educational subsidies to the poor — a politically popular idea — in the lead-up to the October 2021 elections.
But the new wealth tax will not affect just the super-rich, Roberts said. Because it applies only to assets, it will not take taxpayers’ debts into account, so they might appear wealthier on paper than they really are, he said. It will also result in double taxation that could overburden taxpayers in an already challenging year, he added.
Argentina is the first Latin American country to pass a wealth tax in response to the pandemic, but other countries — including Brazil, Chile, and Peru — have similar proposals in the pipeline. In Bolivia, President-elect Luis Arce said in October that he planned to propose a tax on personal assets over $5 million or $10 million.