With the 2017 Tax Reform, the fuel tax was transformed from ad valorem into unitary.
A fee is ad valorem when it is determined by applying a percentage to the price AND it is unitary when a fixed sum is applied per unit of sales or production.
According to the law, the fixed amount of the tax on liquid fuels and carbon dioxide must be updated quarterly by the variation that the Consumer Price Index had in the same period.
Given the inflationary context, the Government has provided for with Decrees 488/2020, 285/2022, 561/2022 and 864/2022 some suspensions and postponements of the update of the fixed tax.
Consequently, the updates of the fixed tax relating to the third and fourth calendar quarters of 2021 and to the first, second, third and fourth quarters of 2022 have not been applied.
In the last two years, only the adjustment was made for the first and second quarters of 2021 and amounted to 25.32% as of October 2022.
This has created a potential increase which, once implemented, will increase significantly the price of fuels with the related inflationary impact.
This potential increase would have been applied starting tomorrow, Saturday 1 April 2023, and would have been 134.61042268% if it hadn’t been suspended and postponed again, as decree 168/2023 published this Friday in the Official Gazette did.
For example, the increase in petrol prices up to 92 RON, over 92 RON and virgin, it would have been $37,239 a litreaccording to the following detail:
Decree 168/2023 establishes this increase plus that corresponding to the first quarter of 2023, which will be applicable from 1 July 2023.
Beyond that, the measure benefits fuel consumers and is not another factor in increasing inflationit is important to remember that these suspensions and postponements should have been provided for by the Law, since the Executive was forbidden to issue decrees of necessity and urgency in tax matters.
Consequently, the Decrees, even when they are not of necessity and urgency, would be unconstitutional.
Argentina needs legal certainty and an improved institutional framework, so the necessary political agreements should be reached to hold congressional sessions and adopt this type of measure into law.
Finally, It is important to remember that the government has made a commitment to the IMF to transform this tax from a unitary tax to an ad valorem tax with the aim that it increases according to the change in the price of fuels and does not need a quarterly update from the CPI: “It is worth noting that taxes on fossil fuels are widely used in the world for the control and management of externalities , such as environmental pollution and in particular carbon emissions. In our country they are historically a progressive and stable financing instrument, using “ad valorem” rates. However, with the changes introduced by Law 27.430, published on December 29, 2017, a disruptive regime of the one in force in the last 20 years was established, with taxation through fixed amounts (in $) per unit of measurement.
Although the fixed amount includes a quarterly update mechanism based on the evolution of the Consumer Price Index (CPI), the application of this scheme based on international experiences unrelated to the economy of our country, has generated a significant loss in tax collection, which has gone from 1% of GDP before the reform (2017) to 0.7% of GDP in 2020. In this sense, the return to the “ad valorem” regime represents a measure to defend the collection of these taxes, both at national and provincial level, given its nature as a shared tax”. However, no bill in this regard is known.
NS
Source: Clarin
