What will happen to the PAIS Tax?
Since he took power, the administration of President Javier Milei has promised to reduce (if not eliminate) the PAIS Tax. And the issue has regained strength after the approval of the Bases Law in Congress. Although in public statements the president has said that the lowering of the PAIS tax rate depends in part on variables that are not a decision of the government, the Minister of Economy, Luis Caputo, was somewhat more precise when speaking that this modification could see the light in August or September of this year.

Regardless of the effective date of this tax reduction, there are some questions about issues that are left out of the official discourse. On the one hand, there is talk of a reduction in the rate from 17.5% to 7.5%. That is, we would return to the rate that was in effect before the change of government. But not all products are taxed at this rate: there are goods to which a 30% tax is applied. These are items that the market calls “luxury”, among which are watches, perfumes, alcoholic beverages, tobacco, slot machines, cryptocurrency miners, etc. And when talking about the rate reduction, this group of goods is not mentioned (perhaps because surely in the first stage only the 17.5% rate will be reduced). But there is a very important issue that must be resolved when the time comes, and it is the advance payments of the PAIS tax that are paid at the time of import clearance.

As we know, the taxable event that determines the application of the PAIS Tax is the purchase of foreign currency. And at the time of officializing the import clearance, an advance payment equivalent to 95% of the tax is paid (that is, in the case of items to which 17.5% is applied, an advance payment of 16.625% is paid, while that for those in the 30% group it is 28.5% ahead). This advance, which is paid in pesos at the exchange rate of the office, is also deducted in pesos from the tax that must be paid at the closing of the exchange. We also know that the tax and its advance payment are linear. It means that the tax paid for an import is deducted from the payment abroad for this same import. In summary, if the reduction in question is implemented, importers will have paid a much larger advance than what will be accrued at the time of the exchange closing, and they will have no place to deduct it from.

Empirical evidence shows that although in AFIP there is a repetition procedure that allows requesting the refund of amounts unduly paid, importers are not receiving these refunds. After the exchange reform that took place in December of last year, many importers chose to cancel their debts outside the Exchange Market (either through Cash With Settlement -CCL-, debt assignment, BOPREAL, or some other options available on the market). And these importers are the ones who are now demanding that the AFIP refund the advances paid when they made their shipments official, without having a concrete response from the organization. The current debt of the treasury with importers is about USD 150 million (although before the December devaluation this same debt in pesos was equivalent to almost USD 400 million).

Standing on the opposite sidewalk we find the industrialists frightened by the imminent reduction in the PAIS tax rates. This sector argues that this reduction, added to the crawling peg of 2% monthly against much higher inflation, would put them in a situation of inferior conditions regarding imports (mainly from Asian countries). For this reason, the industry asks the government to lower the tax starting with inputs, before moving on to finished goods. Meanwhile, the government insists that it will reduce the PAIS tax soon, and that it will not devalue the currency.

Finally, it is important to highlight that official comments mention that the PAIS tax may be reduced once the state coffers begin to receive funds from the tax modifications introduced by the Base Law. But the law must still be promulgated, so that the regulatory decrees can then be issued, so that they can then come into effect, so that their impact on revenue collection can later be seen. Therefore, talking about changes in August or September seems somewhat optimistic.