Argentina - Tax policy for stabilization and economic recovery

A WORLD BANK COUNTRY STUDY Argentina Tax Policy for Stabilization and Economic Recovery FILE COPY ,~~~W _  I  A WORLD BANK COUNTRY STUDY Argentina Tax Policy for Stabilization and Economic Recovery The World Bank Washington, D.C.  Copyright i 1]990 The International Bank for Reconstruction and Development/THE WORLD BANK 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. All rights reserved Manufacturecl in the United States of America First printiing April 1990 World Bank Country Studies are among the many reports originally prepared for internal use as part of the continuing analysis by the Bank of the economic and related conditions of its developing member countries and of its dialogues with the governments. Some of the reports are published in this series with the least possible delay for the use of governments and the academic, business and financial, and development communities. 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ISSN: 0253-2123 Library of Congress Cataloging-in-Publication Data Argentina : tax policy for stabilization and economic recovery. p. cm. -- (A World Bank country study) Includes bibliographical references. ISBN 0-8213-1541-2 1. Taxation--Argentina. 2. Fiscal policy--Argentina. I. International Bank for Reconstruction and Development. II. Series. HJ2505.A75 1990 339.5'25'0982--dc2O 90-35701 CIP  PREFACE This report is based on the findings of a World Bank mission that visited Argentina between April 17 and May 5, 1989. The mission comprised the following members: Luca Barbone (Mission Leader) Jaime Vazquez-Caro (Tax Policy and Tax Administration) Jorge Mac6n (Tax System and Income Tax Issues) Jose-Manuel Gonzalez-Paramo (VAT) Miguel-Angel Lasheras (VAT) Alberto Porto (Provincial Finances) Contributions were also received from Guillermo Perry (Taxation of Energy Products); Michael McKee (Effective Tax Rates on Capital Income); Richard Bird (December 1988 Tax Reform). The report benefitted from the studies produced by the Tax Policy Group (Public Sector Technical Assistance Loan, PSTAL AR-2712), under the direction of Juan Carlos Gomez-Sabaini. Particular thanks are due to Viviana Duran. Research assistance was provided by Gy6zo Gabor. Roberto Manrique provided research assistance and coordinated the organization and editing of the report. Invaluable secretarial support was given by Lien- Hiep Nguyen and Francine Coscolluela. - iii -  CU_RENCY EQUIVALENTS Currency Unit - Austral Official Exclhange Rate, February 1, 1990 US$1..00 - A$1,950 A$1,000 - US$0.513 FISCAL YEAR January 1 - December 31 GLOSSARY CUIT Codigo Unificado de Identificacion Tributaria (Unified Taxpayer's Identification Code) DGI Direcci6n General Impositiva (General Tax Directorate) EEC European Economic Community FONAVI Fondo Macional de Vivienda (Housing Fund) GdE Gas del Estado (National Gas Company) OECD Organization for Economic Cooperation and Development VAT Value-Added Tax YPF Yacimientos Petroliferos Fiscales - iv -  TABLE OF CONTENTS Page Nos. COUNTRY DATA vii EXECUTIVE SUMMARY ......................................... ix CHAPTER I: MACROECONOMIC PERFORMANCE AND THE TAX FINANCING OF GOVERNMENT EXPENDITURES ..... 1 A. Fiscal Instability and Tax Revenues 1... B. Macroeconomic Developments and Aggre- gate Revenue Performance ............ l0 CHAPTER II: THE TAX SYSTEM: BETWEEN MODERN TAXES AND TAX HANDLES ......... ..................... 18 A. Overview: The Structure of the Tax System ............ .................. 18 B. Modern Taxes and Tax Handles 23 C. Tax Policy: The Growth of Tax Expendi- tures .26 D. Efficiency and Equity Aspects of the Tax System .30 E. Tax Policy: 1984-88 .34 CHAPTER III: TAX ADMINISTRATION ..... ..................... 40 A. Administration and the Legal Tax System 40 B. Administration and Substantive Tax Law ................................. 43 C. Individual Compliance: Procedural Laws 45 D. Administration: The Internal Organi- zation Laws . .49 E. Administration: How Has DGI Fared? 53 F. Reconmendatios . .61 CHAPTER IV: REFORMS FOR STABILITY AND GROWTH IN THE 1990S 66 A. Tax Reform: Main Lines of Action 66 B. Direct Taxes: A Proposal for Funda- mental Reform .68 C. Generalization of the VAT .81 D. Taxation of the Energy Sector 91 E. Emergency Tax Measures and the Imple- mentation of the Reform .94 - v -  TABLE OF CONTENTS (Continued) Page Nos. CHAPTER V: FEDERAL-PROVINCIAL FISCAL RELATIONSHIPS ..... 97 A. Revenue Sharing ..... .................. 97 B. Own Revenues of Provincial Government . 105 C. Decentralization of the Tax System 109 APPENDICES: 1.1: Tax Revenues, Outpujt and Inflation 117 2.1: Evaluating the Tax Burden in Argentina .120 2.2: Marginal Effective Tax Rates on Capital Income ........................ 123 4.1: Adjustment for Inflation .132 4.2: Taxation of the Energy Sector - Alternative Scenarios .136 REFERENCES .................... ............................ 142 - vi --  COUN4TRY DATA - ARGENTINA AREA POPIILATION DENSITY a 2766.9 thou.. sq.bm. 32.0 million (1968) 10.7 par sq.bn 1.5% anua -goth 16.9 par sq.km of ...abia land POPULATION CH-ARACrERISTICS a/ EALTH b/ Crud. Birth Rat. (par 1000) 23.6 Population Par phyaician (thou..) 0.5 Crude Oaath Rat. (par 1000) 8.9 Population par hospital bad (thous.) 0.2 Infant Mortality (par 1000 1ba birth.) 34.4 INCOME DIS7RIW.JI 101 b/ DISTRISPJTION OF LAND OWNERS3HIP X of natona ..Incoma, highnat quintila 50.31 1 oana by top 10% of lan oar I of national incm, Il..ast qunia4.4% 8 uanad by- amllast 10% of land uana ACCESS TO SAFE W4A189 (1980) ACCESS TO ELECTRICITY (1969) I of pultonrhn65% 1 of population 95% I of populatio-url17% NUTJRITION af EDUJCAT ION Caloria intaka as If raquira...ants 119.21 Adult litarac y rata 1 (1980) 951 Par capita protain intaka (grams par day) 99.7 Primary school anoiatIa 1001 @W PER CAPITA IN 1988 c/ 2537 GROSS NATIONAL PRODUCT IN 1988 di' ------------------------------I AN**AL GROWTH RATES (% constant prin... US% Mnb. of (S- - - -- - - - - -- - - - - -- - - - - (curat pricaa.) 1970-75 1975-80 1980-85 1988 NP at marbat pri-a 75820.6 100.0 2.9 1.8 -3.4 -0.7 roaDomastic In-ntmant 10095.4 13.4 1.9 4.4 -16.2 -4.7 roaNational Sa-i'ge 74856.2 9.9 0.5 2.0 -13.8 29.9 Currant Account Ba[anca -2839.2 -3.5 Eaporta of Good. A NrS 10337.3 13.7 -4.7 14.1 5.2 58.8 Imports of Goods