Cavallo's Transaction Tax Takes Effect In Argentina

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

23 April 2001

Argentine's Finance Minister and self-appointed economic saviour Domingo Cavallo rocked financial markets last week when he proposed tying the value of the peso to a basket of currencies including the Euro, although analysts eventually concluded that this wasn't a covert devaluation.

Meanwhile, he has proceeded with the introduction of his transactions tax, which applied to deposits and withdrawals in checking accounts as from 3rd April. The tax is at 0.25%, as originally announced, except that for many types of organisation which undertake high volumes of bank transactions in their everyday trading, the rate is only 0.075% - this lower rate applies to a variety of businesses such commodity dealers, commission agents, organisations operating electronic accounts through the internet or credit card systems, and companies such as stock exchange brokerages licensed under the Act On Financial Entities.

Exempt activities include transfers to other checking accounts held by the same account holder, credits on checking accounts stemming from bank loans, electronic transfers that do not involve movements on checking accounts and international transfers in foreign currency related to foreign trade transactions.

As first described, the tax was to have been creditable against VAT or income tax, since Cavallo said he did not want to increase the overall level of taxation. In fact, the law which has gone into effect does not include any such provision, although the government has indicated that this could change depending on how much revenue the new tax generates.

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