RIO DE JANEIRO, BRAZIL – The government of Alberto Fernandez presented a project that seeks to raise income tax bracket rates for large companies to compensate for the shortfalls that result from the exemption of salaries of up to AR$150,000 (US$1,643).
The initiative proposes a 25% tax rate on all profits for companies with annual net income of less than 1.3 million Argentine pesos (US$ 14,247), thus maintaining the rate that was applicable this year according to the tax reform of the Macrismo government.
But for companies with higher profits there is a scheme of increasing rates, of 30% on the surplus of 1.3 million pesos (US$14,247 for all those that register profits between that figure and 2.6 million (US$28,495), plus a fixed payment of US$325,000 (US$3,561).
For companies earning more than 2.6 million pesos (US$28,495), the tax rate becomes 35% on the excess of that amount plus a fixed charge of 715,000 pesos (US$7,836).
In addition, a 7% tax rate is fixed on the distribution of profits, which brings the highest marginal tax rate to 39.55%. Thus, the impact on companies will be extremely heterogeneous, depending on their level of profits and whether they will distribute profits or not.
The Argentine Institute of Fiscal Analysis (Iaraf) estimated for which companies this year’s tax rate will represent an increase or a decrease with respect to last year’s rate of 30%, maintained at that level in 2020 by the Solidarity Law when it should have been lowered to 25%.
Companies with profits over 4 million pesos (US$43,839) will pay a higher effective tax rate than the one they paid last year:
Those that did not distribute profits, which had a 30% tax rate in 2020, with annual income of 4 million Argentine pesos (US$43,839) the effective rate now becomes 30.13% and grows if the profits are higher.
Those that distribute 50% of the dividends, which had a rate of 32.45% last year, with 4 million Argentine pesos of profits (US$43,839) will pay 32.57%.
Those that distribute 100% of the profits, which had a rate of 34.90% in 2020, with net income of 4 million pesos (US$43,839) will pay 35.02%.
Evidently, the higher the income, the higher the effective tax rate will be, as well as the gap with what they were taxed last year.
The distribution of dividends was forbidden for all companies that have received the salary allowance of the Labor and Production Assistance Program (ATP). Beneficiaries with fewer than 800 employees will not be able to distribute profits until January 1, 2022, while those with more than 800 employees will be prohibited until January 1, 2023.
Source: El Economista
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