The International Monetary Fund demanded that Argentina implement a tax reform before year-end, significantly increasing income tax payers and raising the monotax, following a US$1 billion debt disbursement linked to previously missed program targets.

The International Monetary Fund (IFM) disclosed new conditions for the Javier Milei’s administration in a report published merely hours after the institution disbursed US$1 billion to Argentina’s accounts.

This payment forms part of the larger US$20 billion debt agreement overseen by Milei and his Economy Minister, Luis Caputo. These new mandates, detailed in the report titled “Argentina: Selected Issues”, will impose higher and broader taxes on Argentine workers.

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The IMF’s demands are a direct consequence of the second review of Argentina’s debt program. During this assessment, the Fund concluded that Milei’s administration failed to meet its core economic objectives. The institution, led by Kristalina Georgieva, characterized Argentina’s existing tax system as “complex, highly distortive and unstable.” Based on this assessment, the IMF called for a “comprehensive tax reform” to “strengthen the fiscal anchor” of the South American nation.

This implies expanding the tax collection base, moving towards a holistic reform and eliminating what it deems “distortive taxes” on corporations. These changes are slated for implementation in the medium term, with the new measures expected to be active before the end of the year. In essence, this translates into more austerity policies within the State and increased financial pressure on Argentinean workers and citizens.

According to the IMF’s projections, these proposed reforms could boost Argentina’s overall tax revenue by an estimated 3.3% of its Gross Domestic Product (GDP). To achieve this, the Government must ensure that 20% of the country’s workers contribute to income tax. Currently, only 1% of workers pay this tax, primarily due to consistent rejections and opposition from the powerful General Confederation of Labor (CGT, in Spanish), which has historically resisted such increases impacting wages.

The IMF’s internal calculations suggest that expanding the base of income tax payers could contribute an additional 1% of the GDP to state coffers. Furthermore, an increase in the monotax, a simplified tax regime for self-employed individuals and small businesses, is projected to add another 0.4% of the GDP. This financial burden underscores the Fund’s strategy to secure greater fiscal stability, often at the expense of worker income and social programs, a common trend in debt restructuring agreements imposed on developing nations.

As of today, the Argentinean Government has not officially confirmed whether it will accept these strict conditions. The measures would directly impact to Argentinean workers, potentially leading to further social unrest in a country already grappling with significant economic challenges and inflation. The IMF report also noted that these reforms would allow for a “gradual reduction of taxes on trade and financial transactions”, hinting at potential relief for corporations and investors while increasing the burden on the working class.

Moreover, the document recommends creating “margin for the provinces to strengthen their tax structure”, suggesting decentralization of some fiscal responsibilities.

This move could shift more taxation power to regional administrations, potentially leading to varied economic impacts across different Argentine provinces.

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