Argentinian Provinces Battle For Share Of Transactions Tax

by Mike Godfrey, Tax-News.com, New York

14 September 2001

Argentine Finance Minister Domingo Cavallo says that he will attempt to bring down the ruinously high rates of interest the country is having to pay on its international debt by offering guarantees based on domestic tax collection, effectively securitising the forward tax revenues.

In this way he hopes to achieve rates of 7% to 8 % on future bond issues, down several hundred basis points from what is currently possible.

Meanwhile the row between the federal and provincial governments over the sharing of revenues from the financial transactions tax is deepening, with provincial governors girding up for legal action against the national authorities if President Fernando de la Rua's administration cuts monthly transfers of shared revenue as it is threatening to do.

Provincial governors, who met at the Federal Investment Council (CFI) yesterday, agreed to call for Congress to urgently pass a law to share the 432 m pesos monthly revenue from the financial transaction tax. Jujuy Province Governor P J Eduardo Fellner has already filed a suit against the national Treasury, claiming arrears of some 50 mln pesos in federal transfers.

San Juan governor Alfredo Avelin, an ally of the national government Alliance coalition, said: "There is a great unity of criteria and solidarity between governors. We will require that the national government give us what we are due."

The consensus among provincial governors is that revenue from the financial transaction tax should be shared, as was revenue from some of the taxes it replaced. But the government promised the IMF in its recent policy memorandum to cut provincial transfers by up to 900 mln pesos between now and the end of the year, unles tax collection recovers.

The financial transaction tax, currently 0.6% on both bank credits and debits, was one of the first measures pushed through by Domingo Cavallo when he was appointed as economy ministry in March. Cavallo subsequently enabled the banking tax to be applied as a credit towards VAT or income tax, both collected by the AFIP national tax bureau and shared with provinces.

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