Argentina’s wealth tax failure?

In the podcast below I discuss, and analyse, some news stories which have caught my eye recently including:

  • Has Argentina’s wealth tax failed?
  • Will other countries follow in the footsteps of Argentina?
  • Could there be a global minimum corporation tax?
  • Globally digital taxes

To give credit to the original authors I have copied the articles below

  1. Argentina’s wealth tax has collected just 2% of target to date – BA times

Argentina’s new wealth tax has netted just two percent of its target figure ahead of its original deadline, with the nation’s richest citizens evidently in no hurry to pay up.

Argentina’s new wealth tax has netted just two percent of its target figure ahead of its original deadline, with the nation’s richest citizens evidently in no hurry to pay up.

The government collected only 6.063 billion pesos (US$66 million) from its one-off “extraordinary contribution” in the course of March, a communiqué reported on Monday night (not including advance payments of 504 million pesos). 

Although Argentina’s richest individuals now have until April 16 to pay the tax – after authorities extended the original March 30 deadline – the intake thus far has been well below the projected target of 300 billion pesos when Congress approved the bill late last year.

The tax was designed to help cover some of the costs incurred by the government in meeting the health crisis triggered by the coronavirus pandemic (although other areas have since been added). Argentines owning more than 200 million pesos worth of assets must pay between 2.25 and 5.25 percent of that fortune, depending on its size and whether it is invested at home or abroad.

Running into obstacles implementing the measure, the AFIP tax bureau has already postponed the original deadline while offering ‘cuotas’ or payment plans to the approximately 13,000 people subject to the levy, of whom over 1,000 are reportedly resisting payment while a couple of them have already successfully defied the tax in court. Only seven lawsuits have been filed so far but the government is expecting an avalanche in the next fortnight.

Despite these problems facing the wealth tax, Argentina’s general fiscal picture has improved. Revenues improved 72 percent last month with respect to the previous March, according to the data published last Monday, well ahead of annual inflation of close to 40 percent.

Only 20 percent of this tax will actually go to covering health costs from the pandemic – more (25 percent) is earmarked for the exploration and production of natural gas, 20 percent to support the PyMEs small and medium-sized companies with subsidies and loans, 20 percent to relaunch Progresar scholarships for young students and 15 percent to contract co-operatives to urbanise low-income neighbourhoods.

2. World Bank warns against ‘high’ global tax minimum – BBC

The head of the World Bank has warned world leaders against setting a global minimum tax rate for companies that is too high.

In an interview with the BBC, David Malpass said he did not want to see new rules that would hinder poor countries’ ability to attract investment.

The 21% global minimum rate called for by US Treasury Secretary Janet Yellen “strikes me as…high”, he added.

Officials said on Wednesday they hope to reach a global tax deal by mid-year.

Ms Yellen has said a global minimum tax on companies is necessary to stop a “30-year race to the bottom”, which has seen countries slash rates on companies, in an effort to woo business investments.

She is in favour of having all countries agree to a minimum tax rate of 21%. Meanwhile, the US under President Joe Biden is seeking to increase its minimum tax rate to 28%.

To US lawmakers, Ms Yellen has made the case that establishing a global minimum tax would allow the US to remain competitive, despite that increase.

The UK is also looking to raise taxes on corporations from 19%, up to 25% in 2023, in what would be the first increase since the 1970s.

Global tax deal

Earlier talks led by the Organisation for Economic Co-operation and Development (OECD) had focused on a minimum corporate rate of 12.5%.

While the European Commission this week said it supported the idea of a minimum tax, officials declined to comment on a specific rate. 

Some countries, such as Ireland, have expressed reservations about the US proposal.

The average corporate tax rate globally is about 24%, according to the Tax Foundation. Europe has the lowest regional rate at roughly 20%.

Mr Malpass told the BBC he was encouraged by signs of renewed focus on the global tax talks, which have dragged on for years without coming to resolution. 

But he cautioned that world leaders must consider how a new global minimum tax might fit in with other proposals to tax carbon and digital services provided by tech giants – other priorities for the negotiations.

“The critical thing is to have growth for countries around the world,” Mr Malpass said. “Tax rates matter for everyone and so there also needs to be a legal environment that attracts new investment into the poorer countries.” 

He added that Ms Yellen’s proposal of a 21% global minimum tax “strikes me as a high corporate rate, but this is not my call”.

3. U.S. Forges Ahead on $1 Billion Tariff Plan Over Digital Taxes – Bloomberg.

The U.S. is pressing ahead with plans to hit six nations that tax Internet-based companies with retaliatory tariffs that could total almost $1 billion annually.

Goods entering the U.S. — ranging from Austrian grand pianos and British merry-go-rounds to Turkish Kilim rugs and Italian anchovies — could face tariffs of as much as 25% annually, documents published by the U.S. Trade Representative show. The duties are in response to countries that are imposing taxes on technology firms that operate internationally such as Amazon.com Inc. and Facebook Inc.

In each of the six cases, the USTR proposes to impose tariffs that would roughly total the amount of tax revenue each country is expected to get from the U.S. companies. The cumulative annual value of the duties comes to $880 million, according to Bloomberg News calculations.

Retaliatory Tariffs

The U.S. is proposing duties on hundreds of millions of dollars in imports.https://www.bloomberg.com/toaster/v2/charts/acefb56f32784d74bee23d19f840f82a.html?brand=politics&webTheme=politics&web=true&hideTitles=true

Source: U.S. Trade Representative

Note: Figures are annual estimates

There have been efforts to replace each individual country’s digital taxes with one global standard — to be brokered by the Organization for Economic Cooperation and Development — but a deal has yet to be reached.

The U.S. says it’s committed to the OECD process, but will maintain its options, including tariffs, in the meantime, USTR Katherine Tai said in a statement on March 26.

The Internet Association — whose members include Amazon, Facebook and Alphabet Inc.’s Google — welcomed the USTR’s move.

The USTR’s action “is an important affirmation in pushing back on these discriminatory trade barriers as the U.S. continues to work to find a viable solution at the OECD,” the group said in a statement.

The USTR has invited public comment on its plans to go ahead with the tariffs, and will hold public hearings at the start of May.

Below is a round-up of the tax laws in each country, which goods may be affected, and the date of the virtual USTR hearing.

The U.K.

  • The U.K. applies a 2% tax on the revenues of certain search engines, social-media platforms and online marketplaces.
  • The tax affects companies with digital-services revenue exceeding 500 million pounds and U.K.-specific digital-services revenues exceeding 25 million pounds.
  • The USTR estimates the value of the DST payable by U.S.-based company groups to the U.K. be about $325 million annually.
  • Potentially affected goods include art supplies, make-up and cosmetics, apparel, boat-swings and other fairground amusements.
  • The USTR’s public hearing is set for May 4.

Italy

  • Italy’s DST applies to companies that during the previous calendar year generated 750 million euros or more in worldwide revenue, and 5.5 million euros or more in revenue deriving from the provision of digital services in Italy.
  • The USTR estimates the value of the DST payable by U.S.-based firms to Italy at about $140 million annually.
  • Potentially affected goods include caviar, handbags, suits and bowties.
  • The public hearing is set for May 5.

Spain

  • Spain charges a 3% tax on certain digital-services revenue related to online advertising services, online intermediary services, and data-transmission services.
  • Companies with worldwide revenue of 750 million euros or more and 3 million euros in certain digital-services revenues are subject to the DST.
  • Initial USTR estimates indicate that the value of the DST payable by U.S.-based companies to Spain will be as much as $155 million annually.
  • Potentially affected goods include shrimp and footwear.
  • The public hearing is set for May 6.

Turkey

  • Turkey’s DST applies to companies that during the previous calendar year generated 750 million euros or more in worldwide revenues and 20 million lira or more in revenue from providing digital services in the nation.
  • U.S. based companies would pay Turkey about $160 million in taxes annually, USTR estimates show.
  • Carpets, hand-woven rugs and glazed ceramic tiles are among the goods that could be affected.
  • The public hearing is set for May 7.

India

  • India’s DST imposes a 2% tax on revenue of non-resident companies generated from a broad range of digital services offered in the country, including digital-platform services, digital-content sales, digital sales of a company’s own goods, data-related services and software-as-a-service
  • The value of the DST payable by U.S. companies to India will be up toabout $55 million annually.
  • Goods affected include shrimp, blinds, bamboo products, gold jewelry and rattan furniture.
  • The public hearing is set for May 10.

Austria

  • Austria’s DST imposes a 5% tax on gross revenue from digital advertising services provided in the country. It only applies to companies with annual global revenue of 750 million euros or more, and annual revenues from digital advertising services in Austria of 25 million euros or more.
  • The DST payable by U.S.-based companies to Austria will be up to about $45 million annually.
  • Leather goods, fabrics, optical telescopes and microscopes are among the products that could be affected.
  • The public hearing is set for May 11.

4. IMF calls for wealth tax to help cover cost of Covid pandemic – The Guardian


Fiscal monitor says rich should pay more tax on temporary basis to help support poor and vulnerable

Governments should consider levying higher taxes on the income or wealth of the rich to help pay for the enormous cost of tackling the Covid-19 pandemic, the International Monetary Fund has said.

Inequality had widened in the year since the virus first hit the global economy, the IMF said, and there was a case for the better off being asked to pay more on a temporary basis to meet crisis-related financial costs.

In its half-yearly fiscal monitor report, the IMF called for domestic and international tax changes that would boost the money available to expand public services, make welfare states more generous and meet the UN’s sustainable development goals.

“To help meet pandemic-related financing needs, policymakers could consider a temporary Covid-19 recovery contribution, levied on high incomes or wealth,” the fiscal monitor said.

“To accumulate the resources needed to improve access to basic services, enhance safety nets, and reinvigorate efforts to achieve the sustainable development goals, domestic and international tax reforms are necessary, especially as the recovery gains momentum.”

At a press conference to launch the fiscal monitor, a senior IMF official said there was scope in rich countries to target those individuals and companies that had prospered during the pandemic.

Paolo Mauro, the deputy director of the IMF’s fiscal affairs department, said there had been an “erosion” of the taxes paid by those at the top of the income scale, with the pandemic offering a chance to claw some of the money back.

“Governments could consider higher taxes on property, capital gains and inheritance,” he said. “One specific option would be a Covid-19 recovery contribution – a surcharge on personal tax or corporate income tax.” 

Although the pandemic had led to a sharp drop in average incomes, Mauro said some individuals and companies had done “very well” out of the crisis.

The IMF said fiscal policy – tax and spending measures – should target support on the poor and vulnerable. It has also publicly backed the call by the US Treasury secretary, Janet Yellen, for a minimum corporate tax rate to make it more difficult for big multinational corporations to minimise their tax payments.

A year marked by the biggest contraction in the global economy in modern times had focused attention on governments and their ability to respond to the crisis, the IMF said. Popular support for better public services, already significant before the pandemic, had probably risen.

Urging rich countries to use their resources to speed up the vaccination programmes in poorer nations, the IMF said the upfront costs would be outweighed by the faster growth that would result.

The IMF’s world economic outlook – its forecasts for the next two years – contained an upside scenario in which the pandemic was controlled sooner in all countries. This showed stronger economic growth would yield more than $1tn in additional tax revenues in advanced economies, cumulatively, by 2025, and save trillions more in fiscal support measures.

“Vaccination will, thus, more than pay for itself, providing excellent value for public money invested in ramping up global vaccine production and distribution,” it said.

Vitor Gaspar, the director of the IMF’s fiscal affairs department, said: “Pre-existing inequalities have amplified the adverse impact of the pandemic. And, in turn, Covid-19 has aggravated inequalities. A vicious cycle of inequality could morph into a social and political seismic crack.”

Pained by financial indecision? Want to invest with Adam?

Financial Planner - Adam Fayed

Adam is an internationally recognised author on financial matters, with over 248.9 million answers views on Quora.com and a widely sold book on Amazon

Further Reading

In the answers below I spoke about:

  • Will the younger generations be more financially successful than baby boomers?
  • What advice would I give to younger people joining the workforce?
  • How can people not waste their youth?
  • Why is America doing well economically, but has done terribly in terms of the pandemic?

To read more click below

Add a comment

*Please complete all fields correctly

Related Blogs

Adam Fayed financial consultant WhatsApp