The new 'Super VAT' would boost competitiveness and reduce fiscal gaps

The project to create a "Super VAT" to replace the Gross Income Tax and municipal sales taxes is feasible even in those jurisdictions with lower levels of economic activity, according to the latest report from the Argentine Institute for Social Development (IDESA). The entity stated that this new tax scheme "could generate a structural transformation that simplifies and makes provincial and municipal financing more efficient."

In the context of a sustained decrease in inflation, IDESA considers that "the urgency to move forward with structural reforms increases" to improve the country's competitiveness. One of the key points highlighted is the organization of the tax system, where replacing Gross Income and municipal taxes with a single tax such as the "Super VAT" stands out as one of the most relevant proposals.

A new subnational financing scheme

According to the report, the new tax would become the main source of financing for provinces and municipalities, replacing the current distortionary taxes. Currently, at least eight jurisdictions have the capacity to self-finance with this system due to their economic size: CABA, Buenos Aires, Córdoba, Santa Fe, Mendoza, Neuquén, Chubut, and Santa Cruz.

For the rest of the provinces, IDESA acknowledges that difficulties could arise due to their smaller tax bases. "In some northern provinces, outrageous rates would be required due to their limited revenue base," the report warns.

Equalization Fund as a redistributive solution

Faced with this unequal scenario, the proposal includes the creation of an Equalization Fund to compensate the most lagging provinces. According to preliminary calculations, an amount equivalent to 1.5% of GDP would be required, which represents one fifth of what is currently distributed through the revenue-sharing system.

A key difference between the new fund and the current scheme is that transfers would be conditional on meeting fiscal targets and development plans. This would imply a paradigm shift: moving from automatic transfers to a model based on merit and fiscal responsibility.

"The aim is to reduce the enormous and unjustified economic and social gaps between provinces," the document states.

Risks of not moving forward and benefits of the new system

IDESA's report warns that if tax reform doesn't move forward, "a large part of the urban, export-oriented, and competitive production is at risk," which is key to job creation. The report also clarifies that the provinces, on their own, do not have the capacity to replace current taxes without national coordination. At most, they could lower rates, which results in "very limited" relief.

Meanwhile, the "Super VAT" would simplify the tax system, improve competitiveness, and promote more balanced development among regions. The document's conclusion is clear: "The decline in inflation reinforces the need to generate more competitive conditions to sustain growth. Among these, replacing the tax scheme occupies a central place."