Argentina’s Congress Approves Tax Amnesty for Undeclared Savings
Argentina’s lower house of congress last night gave final approval to legislation that pardons tax dodgers who invest undeclared funds in either the construction industry or to finance increased oil and gas production.
The government says the legislation will help bring part of the $160 billion Argentines hide from the authorities into the economy, and rejected opposition arguments the amnesty provides an opportunity for drug dealers and other criminals to launder money.
“Under no circumstances are the anti-money laundering norms being suspended,” Roberto Feletti, a lawmaker from the ruling coalition Victory Front, said before the bill was passed by 130 to 107 votes. “The funds will enter the banking system, and financial institutions have the obligation to apply all the anti-money laundering norms.”
The legislation reflects President Cristina Fernandez de Kirchner’s need for funds to finance YPF SA, the oil producer she seized a year ago on promises to expand output and reduce energy imports, opposition lawmaker Federico Pinedo said yesterday. The government seized 51 percent of YPF last year from Spain’s Repsol SA to stem fuel imports that doubled to $9.4 billion in 2011 and are expected to rise to as much as $15 billion this year.
Under the amnesty, Argentines with undeclared foreign-currency savings will be able to buy dollar bonds to finance increased energy production, or a dollar-denominated central bank certificate that can be used to acquire real estate or building materials.
Property transactons are traditionally conducted in the U.S. currency in Argentina. A ban on most dollar purchases, introduced by Fernandez to stem record capital outflows in 2011, led real estate transactions in Buenos Aires to drop 48 percent in the first quarter from the same period two years earlier, according to the capital’s public notaries’ college. Construction activity has fallen in 11 of the past 12 months, government data show.
Those accepting the amnesty won’t have to pay past-due taxes or explain the origin of the funds. The energy bond pays 4 percent interest and matures in 2016.
The bill was approved by the Senate on May 22.
In 2009, about $4 billion of hidden money was declared to the authorities under a law that enabled savers to whitewash funds by paying a tax of as much as 8 percent. According to deputy Economy Minister Axel Kicillof, Argentines held about $160 billion in undeclared funds in 2006, of which $120 billion had been funneled into foreign bank accounts.
The Financial Action Task Force, a Paris-based intergovernmental money laundering watchdog, in February included Argentina, Zimbabwe, Afghanistan, Cuba and Bolivia in a list of countries that needed stricter controls and sanctions to combat money laundering and financing of terrorism.
Although lawmakers from Fernandez’s coalition say they have undertaken measures to comply with all the FATF requirements, opposition Senator Liliana Negre de Alonso said the bill flies in the face of those demands.
The government has pledged that those who hand over dollars in exchange for the bonds will be repaid in greenbacks when they mature.
“It’s a bad joke for all those Argentines who follow and respect the law,” Miguel Giubergia, a lawmaker from the opposition Civic Radical Union party, said during yesterday’s debate.
Concerned that 24 percent annual inflation, a widening budget deficit and declining central bank reserves would force the government to devalue the peso, Argentines took $21.5 billion out of South America’s second-biggest economy in 2011.
Within days of her re-election in October that year, Fernandez started to tighten currency controls, including limits on dividend remittances abroad, taxes on use of credit and debit cards abroad, and a ban on dollar purchases for savings or real estate transactions.
While her measures slowed capital outflows to $3.4 billion in 2012, central bank reserves, which she uses to pay the nation’s foreign debt, continued to decline, reaching $38.6 billion on May 29 from a record $52.6 billion in January 2011.
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