There is strong consensus on the tax system as it currently works limits the possibilities for development. There is also a broad consensus that to alleviate this problem it is first necessary to do so lower public spending, because otherwise the elimination of distortive taxes aggravates the fiscal deficit. Reality has shown that this leads us to a swamp. The approach is discursively attractive, but very difficult to implement. At least with the necessary speed.
A alternative routewhich neither replaces nor clashes with the objective of reducing public spending, it is order the tax system. One way to implement it, seeking simplicity and reducing distortions, is based on tax unification. It can be demonstrated that, by eliminating the tax overlaps which weigh on the same taxable fact from the three levels of government, bureaucratic burdens and distortions are reduced. This increases voluntary compliance, because taxpayers are more willing to pay and because the state has better control. There are spaces for reduce the tax burden without negatively affecting the tax result.
Skeptical readers will surely think that the idea is attractive and coherent, but utopian for Argentina. However, there are experiences, limited but very suggestive, which demonstrate that the unification of taxes is possible and that, in practice and not only in theory, they have managed to achieve the expected results.
In 2018 the Córdoba Unified Monotribute (MUC), with the aim of merging into a single tax what until then were three taxes that were applied to small taxpayers. These taxes were independently administered by three levels of government (nation, province and municipalities). After the implementation of the reform, the small taxpayer, instead of managing and paying three taxes, began to have to pay only one.
With astonishing speed and strength, the MUC exceeded the expectations indicated by the theory. Immediately after the unification with AFIP, which took place in July 2018, the number of small taxpayers registered in Rentas Córdoba increased by more than 30%, going from less than 120 thousand to more than 150 thousand in August 2018, and continuing to grow over time. On the other hand, tax compliance has also improved. Before unification with the AFIP, less than 60% of taxpayers paid within the month following the due date, and after unification with the AFIP, this share was around 70%.
Among the detractors of fiscal unification, the main argument focuses on the political difficulties to be achieved agreements between governments of different political affiliations. However, experience has shown that this is a complex but surmountable challenge. In the case of Córdoba, this is manifested in the wide ideological variety of the 129 local governments that have voluntarily joined the MUC. This is concrete proof that differences can be overcome when coherent proposals are put forward and a sincere desire for dialogue and understanding in favor of progress is manifested.
The creation and maintenance of the MUC has been an innovative experience that has given excellent results and has continued over time. Thanks to this, of the 204,000 small taxpayers obliged to pay in Córdoba, 55% pay a single tax (because their municipality has joined the MUC), while the remaining 45% enjoy the unification between Province and Nation.
The implementation of the MUC involved an important relief for a large number of entrepreneurs. But since we are dealing with taxpayers with low collection interests, it is still an experiment of limited dimensions. Nonetheless, the most important thing is that it demonstrates that the ordering of the tax system based on unification is not only a good idea, but also an idea that has been put into practice with very positive results.
If the experience of the MUC were scaled to the rest of the taxpayers, the main distorting impacts of the tax system could be eliminated, without being subject to a preventive reduction of public spending in the dimensions and speed that are needed. in our book “A Vaccine Against Decay” We explain, in general terms, how this proposal could be put into practice.
Source: Clarin
