Argentine Government Forced To Share Key Tax Revenue With Provinces

by Robert Lee, Tax-News.com, London

09 November 2001

The Argentine government has been dealt a severe blow by the lower house which has given the thumbs up to a bill which will force the government to share the income of a financial transactions tax. The government had hoped to utilise the total revenue from the tax, estimated to be around $4 billion a year, to guarantee a 'default-avoiding' bond swap.

The government claimed that the tax revenue would have acted as a sound guarantee to help persuade investors to participate in a restructuring programme which it believes is a last-ditch attempt to save the country from a debt default.

Economist Rafael Ber of the Argentine Research consultancy told the Reuters news agency: 'If this advances, it will be very negative ... because we are working toward finding a critical mass of funding to serve as guarantee for the bond swap.'

President Fernando de la Rua's Chief of Staff, Nicolas Gallos, was more upbeat as he told Reuters that he did not think that the bill would necessarily damage the bond swap. If even the tax revenues are shared with the provinces, he said, they may technically still be taken into account for the swap guarantee. 'We'll have to see, but in the end you can't separate the two things,' he said.

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