Monday, February 26

About the tax structure and a paradigmatic example such as the insurance activity

In summary, indirect taxation represents almost 70%, while direct taxation makes up the smallest remaining portion (taxes on income and personal assets).

Furthermore, since the structure is firmly based on consumption, most of the taxes are regressive and/or economically inefficient. One of the effects of regressiveness is the devastating effect it has on people with fewer resources -which is of greater concern with poverty rates above 40%- due to the greater negative impact it has on them (without going into analysis, even , its pernicious effects on income distribution, business organization or, eventually, its significant inflationary repercussions).

2|Direct tax

As if this were not enough, when the group of direct taxes that reach “income” and/or “patrimony” is analyzed, the income tax stands out with notorious deficiencies in the well-known progressiveness -practically non-existent- and the unresolved problems of inflation, with daily proposals for confiscation that do nothing more than discourage investment projects and create undesirable situations of uncertainty, which waste efforts and generate unnecessary costs. Not far behind is the tax on personal assets that generates repudiation of savings, it is conceived from the outset without taking into account the real taxpaying capacity of taxpayers -by ignoring liabilities and consuming assets at inexplicably high rates and which, moreover, fall on mere revaluations of assets re-powering the problem- and violating when it is decided to unfold them basic constitutional principles (such as equality, reasonableness, among many others).

3|Provincial taxation

On the provincial side, the issue is still serious either. The tax on gross income stands out with a clear anti-competitive bias -since it falls in a cascade and cumulatively- and has a direct impact on the conformation of prices in the economy. To it are added the increasingly relevant municipal rates, even though there may be no theoretical justification whatsoever and there is a lack of an order of horizontal coordination, which gives it some sanity.

Although this problem of taxation is not exclusive to any sector in particular, it is still illustrative to take the insurance activity as an example, where fiscal policy has not only been neglecting its objectives and its importance for society as a whole, but also appears as a source of fiscal resources against the logic that should prevail in this matter.

4|Other taxes

Beyond all that has been said, although they are little publicized, there are other tax manifestations that do not cease to aggravate the exposed situation, and beyond the fact that in some cases they remain hidden by not allowing their transfer by law, the effects that they cause they are not without the same negative consequences of a system structured on the basis of consumption. Indeed, in addition to the usual rate of superintendency and contribution for the Institute of Social Insurance Services, other rates are added that are still taxes in their generic vision, such as the Road Safety Rate, Firefighter Contribution, Contribution to the Fund National Fire Management and Contribution to the National Transportation Fund.

In short, as Table 2 shows, practically 40% of what an insured person pays above the cost of pure insurance is taxes.

It is clear that the participation of this Sector in the economy is not minor, but it is also important to recognize the important function of protection that it fulfills in society, allowing risks to be distributed in a technical and sustainable manner over time, preventing the imponderables of the population ultimately become critical and insurmountable situations for those who have to suffer the occurrence of an eventuality that produces the loss of part of their heritage or the lives of people.

5 | Tax policy

It should be borne in mind that in crisis situations there is a natural propensity to reduce costs, especially those that can be perceived further away in terms of occurrence (an explanation for this could be that almost 50% of the automotive market remains without coverage even against the existing legal obligation or the usual undervaluation of the risks covered as happens with the value of real estate under the horizontal property regime). For this reason, fiscal policy, properly understood, needs to be channeled within the framework of a comprehensive analysis that allows weighing not only the circumstantial collection needs of the public treasury, but also all those other aspects that aim to generate a model overcomer for the country, with a view, in short, to achieving the main objective of modern societies: the general well-being of the population as a whole, without reservations or short-term visions.

Partner and Senior Manager of the Division

of FSO Taxes – EY Argentina, respectively.