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Wednesday, December 4, 2013

Tax on credit card purchases abroad rises to 35%

AFIP raised the tax on credit card purchases outside the country, tourist holiday packages and plane tickets to 35 percent from 20 percent.
By Fermín Koop
Herald Staff

Measure comes as the government tries to decrease gap with ‘blue’ US$

The federal government toughened its currency controls yesterday to stem a dramatic depletion of its international reserves by making it more costly for people to travel abroad and buy foreign goods with their credit cards.

A measure published in the Official Gazette by the tax collection agency AFIP raised the tax on credit card purchases outside the country, tourist holiday packages and plane tickets to 35 percent from 20 percent.

The same 35 percent tax will now be levied on the limited amounts of dollars that people can buy from the government to travel, known as the tourist dollar.

No changes were made on the tax refund system, which people can use to deduct it from payments of income tax and of personal property tax. Exchange agencies have until December 9 to adapt to the new system.

The official dollar closed yesterday at 6.16 and traded at 9.22 pesos on the black market. With the 35 percent tax, the so-called tourist dollar that residents will have to pay on their credit cards when they travel abroad is about 8.31 pesos.

“Economic policy decisions make it advisable to extend the use of this tool to tax the sale of foreign currency for travel and tourism expenditures,” noted the AFIP resolution published yesterday.

This latest increase marks the third time the government has increased the tax. It was initially set at 15 percent, and later increased to 20 percent.

Yet travellers can now breathe easy. There can be no more surprise increases on the levies on foreign currency purchases. If the government seeks to further discourage foreign currency purchases it will have to go through Congress.

The measure has the direct objective of solving the drop of international reserves, which have fallen almost 30 percent this year due to a scarcity of export dollars and investment by foreigners.

Economists estimate tourism depletes the Central Bank’s reserves by between US$600 million and US$800 million a month.

“We believe there is a drain on foreign currency through tourism,” Cabinet Chief Jorge Capitanich told reporters. “We have to manage our reserves very carefully to guarantee the flow of industrial inputs needed to boost economic growth.”

Tourism agencies were not surprised by yesterday measure, saying they were expecting it for several months. Numerous people have chosen, tourism operators said, to buy their airplane tickets and hotels for this summer vacations in advance due to the expectation of a new increment following the legislative elections.

“We imagined that something like this was going to happen,” Jorge Cembal, head ot Scholem Tours, told the Herald. “Most of my customers bought all their tickets and hotels in advance because of this. There might be a minor drop but I imagine people will continue travelling abroad at the current levels.”

Reserves drop

Shut out of financial markets since its record default a decade ago, the government for three years now has had to burn up reserves — generated mainly by grain exports — to finance its imports and pay debts.

Increased spending abroad by Argentines has dealt a heavy blow to reserves, as tourists visiting the country have been spending less, implying an outflow of much needed greenbacks for debt repayment, when trade, the primary source of dollars for the economy, has dwindled due to soaring energy imports.

Economist agree on yesterday’s measure not being the only solution to the reserves drop and said new measures might come soon.

“This doesn’t solve the decline in reserves. Tourism is indeed one of the factors that led to it but not the main one,” Agustín D’Atellis, economist and member of the pro-government group La Gran Makro, told the Herald. “With the higher taxes on vehicles, the government is trying to solve this injustice.”

Economists largely agree this new tax alone will not stop the plunge.

“The measure will help the reserves of the Central Bank in the long-term but the government has to work on other issues to solve the problem such as the import of services,” Ariel Setton, economist and member of Plan Fenix, told the Herald. “I imagine announcements to come soon regarding new measures.”

Expectations that the foreign currency drain will force the government to devalue has led grain exporters to retain stocks to hold out for a better rate, further depriving the Central Bank of dollars. According to government estimates, farmers are holding back as much as US$6.3 billion worth of soybean exports.

After a decade maintaining an overvalued peso to keep the lid on inflation, the Central Bank has accelerated its gradual devaluation of the peso on the interbank market in recent weeks, fueling further speculation that an official devaluation is on the cards.

“This is a ridiculous step that again hurts the private sector,” said economist Jose Luis Espert, who said the root of the problem is the third-largest fiscal deficit this decade. “The government is financing it by printing pesos, but Argentines don’t want pesos and spend them on travel or convert them into dollars,” Espert said.

Capitanich: More financing

Cabinet Chief Jorge Capitanich attended the Industrial Union (UIA) annual conference yesterday and said the government is seeking to increase funding sources from abroad and, because of that, negotiations are being carried in order to normalize relations with international multilateral agencies.

“Achieving a normal relationship with international agencies will contribute to developing a platform for strategic productive projects,” said Capitanich. “ Negotiations with the Paris Club have been complex, as well with other bondholders. Argentina has always defended its position on debt.”

Capitanich also asked business leaders to invest in the country, while he said the government’s strategy will be to invest in public works.

“President Cristina Fernández de Kirchner has decided to boost public investment in order to reduce systemic costs and inject an increased influx of foreign currency,” he said.

Foreign tourism increases.

Argentines travelling abroad have increased throughout the year, according to figures from the INDEC statistics bureau. In September, the last month reported, a 5.5 percent growth was registered with up to 211,750 people travelling to foreign countries. So far this year, increases were registered all months compared to 2012 except in February (-0.6 percent) and May (-6.6 percent). In September, citizens stayed an average of 14 nights abroad and spent US$92 per day, a 6.1 percent increase compared to the same month of 2012. For the third quarter, 28.9 percent of Argentines travelling abroad chose the “Rest of America” as their destination, followed by 19.2 percent who flew to the United States and Canada, and Brazil with 18.3 percent.

Aeroparque adds passport service.

Interior and Transport Minister Florencio Randazzo said yesterday that “before the end of the year” the Jorge Newbery Metropolitan Airport will have a service that will allow travellers to obtain their passport immediately, which will be later extended to Mendoza and Cordoba airports. The service is currently being offered at Ezeiza airport for US$200.

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