The government raised the income tax threshold to $700,000 in August

They aim to improve the pocket pay of 1 million dependent workers (Reuters)

In a measure that aspires to be felt in the pocket of a million workers, the Ministry of Economy has announced a new tax relief that will come into effect from this month. The new arrangements, to be implemented by decree, stipulate that they will only pay the Income tax those fees greater than $700,875 per month, in addition to the 35% scale increase, retroactive to January of this year. There will be refunds for those who pay tribute, due to a scale modification.

The current situation, which was effective from May 2023, specified that gross monthly earnings must not exceed $506,230 to be exempt from income tax. In this way, 1,015,000 workers were affected by this tax, according to the portfolio led Sergio Massa.

The step increase is retroactive to January 2023. Anything withheld from January to July is returned to the employee in two monthly installments, with the August and September 2023 wages.

The proposals put forward and which will take effect from August seek to extend that benefit, announced just days after Argentines go to the polls to vote in the presidential primaries on August 13. As explained by Economía, it will take into account the variation in the average taxable remuneration of permanent employees (RIPTE) between October 2022 and February 2023, which was 25.29%, and the increase of this indicator by 38.45% in March. , April, May and June.

The first measure, as explained in an official announcement, consists of adding to the “floor” of the tax exemption the 38.45% increase in RIPTE. Therefore, no income tax withholding will apply when gross pay does not exceed $700,875 per month. If the gross pay for the month is between $700,875 and $808,101, an increased special deduction will be calculated.

This increase will allow 300,000 dependent workers to stop paying tax from August, Economía explained.

The second measure is the increasing the scale used to calculate the tax by 35%, for the benefit of all dependent workers who pay this tax. The increase in scales will be applied retrospectively and the excess withheld between January and July will be refunded in two monthly installments with the salaries of August and September 2023.

Both measures are implemented through a Decree that will introduce an increase in the income tax floor and instruct the AFIP to reduce the basis for calculating withholding tax

Both measures will be implemented through an Order establishing the increase in the tax floor and instructing the AFIP to reduce the basis for calculating withholdings.

This announcement clearly reflects the Government’s commitment to easing the tax burden on employees, at a time when the economy needs stimulation and support. It is expected that these amendments will not only increase the spending power of the affected workers but may also have a positive effect on the economy in general.}

In May the Economy had already raised its floor Income tax so that earnings greater than $506,230. Until then, and starting in January 2023, monthly gross earnings not exceeding $404,062, inclusive, did not pay benefits.

Rising wages for registered workers, to some extent due to inflation, necessitate periodic adjustments to the wage floor

At that time, the increase was also decided according to the variation of RIPTE, the index that measures the evolution of registered wages, between October 2022 and February 2023, which was 25.29%. The national executive has the power to raise the income tax “floor”, although when it does so by decree it can only reach a fraction of taxpayers.

That’s because tax policy can’t be changed by executive order, and the option of going to Congress in an election year and amid cross-party tensions doesn’t seem sustainable.

“The executive cannot issue decrees of necessity or urgency on tax matters as defined in Article 99(3) of the National Constitution. Consequently, he cannot give tax breaks”, said the tax official. Sebastian Dominguezfrom SDC Asesores Tributarios.

“However, the Government may grant tax relief to certain dependent employees because this is established by the Budget Act 2023 which gives powers to increase the Income Tax floor for employees, this is the increased special allowance to determine the amount until the employees do not pay as well as the special discount scales increased above this floor and up to a certain value. That can change that, and it can also change the exemption, the exempt amount of the Christmas bonus, also with the authorization of the 2023 budget act,” he added.

The decision released today has been brewing since late June. At the time, and with higher-than-expected inflation data, Massa, AFIP chief Carlos Castagneto and Customs director Guillermo Michel worked to reduce the impact of the tax on around 1 million taxpayers.

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