When the balance in favor plays against

The numerous problems that the Argentine tax system has are increasing in times of abrupt drop in activity, such as the current one. One of them is the accumulation of balances in favor, without the possibility that the taxpayer uses them to cancel obligations with the same creditor.

Specifically, the Value Added Tax (VAT) Law establishes that the tax credit can only be applied to the tax debits of the following years. When a registered person purchases, he pays VAT to the collecting entity and that amount can only be computed against the debit VAT that he receives when he sells.

In short, the technical VAT balance is not freely available, because it cannot cancel other obligations with the Afip itself.

Aggravated problem

This is not a new topic; impacts many activities, especially those that have reduced VAT rates on their sales, such as agriculture. However, during the slowdown in activity caused by the pandemic, it became a much more widespread concern.

Marcelo Almendros, head of the tax policy department of the Industrial Union of Córdoba (UIC), recalls that industrial companies, especially capital intensive ones, have practically unrecoverable loans. “We come from two years with very low margins and now it is added that they do not register sales; therefore, they cannot compute those balances, ”he says.

“Furthermore, with an average inflation of 50 percent per year, in a couple of years this becomes a financial loss,” he points out.

If a taxpayer falls behind, the Afip charges interest and applies penalties, but when it has to repay, it does so at historical value, devalued by inflation.

“The current wording of article 24 of the VAT law has become an obstacle to the subsistence of companies and productive activity. It is a zero-rate loan from the taxpayer to the State, ”says the tax lawyer Héctor Villegas Ninci. And he believes that this “ignores the principle of good faith and is a limitation of property rights” because some firms may see their continuity at risk due to this situation.

From various economic sectors and companies affected, proposals are made to allow this credit to be computed. In 2019, the creation of a kind of general current account that would allow SMEs to include and offset all balances in favor and against, had been considered, but it was not implemented.

There are now bills put forward by some lawmakers to establish an emergency measure with these tax credits, but none have yet prospered. Allowing this option, even in a timely manner during the months of isolation and the following, would be a relief for many difficult taxpayers.

At times when the economy is slowed by a state decision of force majeure and the Treasury continues to demand the payment of taxes on time (the few extensions of maturities were only to solve operational problems), it is worrying that there are companies on the brink of cliff while they have credits that they cannot use to fulfill that same State.