President Javier Milei confirmed on Monday that the PAIS tax on transactions in foreign currency will not be renewed when it expires in December.
The government cut the tax to 7.5% from 17.5% on Monday, after temporarily increasing it in December. Milei is selling it as an example of his low-tax, small-state policy, but analysts say his government will probably have to make up for the lost revenue through austerity or higher duties elsewhere.
“Welcome to the historic moment when a government said it was creating a temporary tax and today, that’s coming true,” Milei said during a speech to the Argentine Industrial Union manufacturing chamber, referring to the morning’s tax reduction. “That’s not all — in December, the awful PAIS tax is ending.”
The PAIS tax was created in late 2019, during the Alberto Fernández presidency, by the then-president and his Economy Minister, Martín Guzmán. It was designed to exist for five years, meaning it was already due to expire this December.
“We’re going to eliminate [the PAIS tax] completely, driving a reduction in the prices of imported products,” Milei continued. “It’s worth noting that imported products include countless input materials, so this measure will help reduce operating costs, improving the competitiveness of our industry.”
The cut that took effect on Monday only applies to trade-related transactions such as paying for imports. It does not apply to credit or debit card transactions, or purchases Argentine residents make abroad. The PAIS tax on these transactions remains at 30%. They are subject to a further 30% in income tax.
During his speech for Argentina’s Industry Day, Milei lashed out at protectionism and nationalist industrial policies, which recent Peronist governments have favored. He argued against import substitution, claiming that previous governments had created a false dichotomy between Argentina’s industrial development and the expansion of its commodity economy.
“To protect industry, they stole from the countryside, and all that created was an industrial sector that’s addicted to the state,” he said.
Milei and Economy Minister Luis Caputo have said the cut to the PAIS tax could help to reduce inflation, as businesses pass on savings to consumers. Analysts have said the cut could bring inflation down by around 0.7% at a time when the government’s progress on reducing inflation is beginning to stall at a monthly rate of around 4%.
However, it remains unclear how the government will make up for the lost revenue, and Argentine industrial associations have warned that it increases competition from imported goods as the country weathers a deep recession.