The government launches a tax amnesty to attract cash into the economy

La Nacion

The government launches a tax amnesty to attract cash into the economy

It will emit a certificate for real estate investors and a bond for energy, both in dollars, in which one can apply dollars brought back; there will be no cost

 

Wednesday, May 8, 2013

 

By José Hidalgo Pallares  | LA NACION

 

With the backdrop of an exchange rate gap that is more than 90% between the official and parallel dollar, a trade surplus that in the first quarter of this year plunged by half and Central Bank reserves at their lowest point in the last six year, the government announced yesterday a bill that seeks to attract dollars to the economy through a tax amnesty on undeclared funds.

 

With this measure, which had a similar precedent in 2009, the government plans to stimulate the sectors that have been showing red: the real estate sector, whose sales plunged as a consequence of the official barriers to buying foreign currency, and the oil sector, whose growing imports explain most of the fall in the trade balance over this year.

 

In the announcement, which was held at the headquarters of the Federal Administration of Public Revenue (AFIP), the full economic team participated for the first time: Economy Minister Hernan Lorenzino, Vice Minister Axel Kicillof, AFIP head Ricardo Echegaray; Central Bank (BCRA) president Mercedes Marcó del Pont, and Commerce Secretary Guillermo Moreno.

 

Lorenzino presented the measure as a system to invest in “strategic sectors” and explained that the bill, sent to Congress yesterday, consists of the creation of two “financial instruments” for those who have non-declared currency, both in the country and abroad.  The first instrument is a certificate of deposit in dollars (Cedin) to stimulate real estate investments, and the second is a bond, also in dollars, whose resources will be destined to the energy sector.

 

According to Marcó del Pont, the goal of the Cedin is to use “idle resources” to “restart the dynamism of the construction sector”.  Individuals or incorporated entities that enter into the amnesty will have to deposit undeclared money (or transfer them from abroad) in a bank, which will deliver a Cedin for the corresponding amount.  The resources captured in this avenue will be subject to deposit in the BCRA (which means the banks cannot use it to finance credits), but to convert the certificates back into dollars, one would have to accredit it to a real estate investment.

 

Kicillof gave an example: a person who want to buy an apartment and has undeclared dollars deposits them in the bank and gets a Cedin in return, with which he pays the seller of the property.  That seller, according to officials, could covert the paper again into dollars.  With this, the government wants to get undeclared dollars to enter into an economy whose source of access to hard currency is currently limited to a dwindling trade surplus.  The certificates, the BCRA president explained, will benefit the holder and will be endorsable.

 

When asked by LA NACION about the confidence that savers could have in the use that it will give to their dollars, since the BCRA reserves fell through the US$40 billion floor, officials said that the reserves are at an adequate level.  This, despite the battery of measures that have been adopted to limit the flight of capital.

 

With this measure, also, it is hoped that the sale of real estate will be reactivated, which, according to the College of Notaries in Buenos Aires, fell 27% in 2012 and another 41.3% in the first quarter of 2013.  Construction, another sector affected by the currency clamp, contracted 3.2% in 2012, according to INDEC, and in the first quarter of the year accumulated a drop of 1.3%.

 

According to what Lorenzino explained, the bonds will mature in 2016 and will pay, every six months, 4% annual interest.  The objective of these bonds, which will have denominations of 100, 1,000 and 10,000 dollars, will be to mobilize resources for the energy sector.  In the first three months of the year, according to INDEC, imports of fuel added up to US$2.09 billion, 57% more than last year.  Lorenzino mentioned YPF as a possible recipient of the funds.

 

Echegaray explained the conditions of the “voluntary exteriorization” of undeclared currency.  The bill is considered both for individuals and incorporated entities and is applied for holdings to April 30 or for money produced with the sale of other assets abroad (like real estate or stock).  The head of the AFIP pointed out that all the funds that enter the country through the amnesty will be exempt from the tax that corresponds to activities that generated the funds, which will also be free of sanctions under penalties in the exchange and tax law.

 

Those who want to adhere to the program will have a deadline of three months to enter starting with the promulgation of the law.

 

Echegaray explained that those who enter into the amnesty will not have to rectify their sworn declarations but that the patrimonial difference will have to be incorporated into the 2013 declarations.  And there was reference made to the 2009 precedent, when 32,000 individuals and 3,800 incorporated entities “took it upon themselves” to enter the amnesty, which produced an inflow of US$4 billion.

 

The official clarified that those who plan on bringing in money coming from money laundering or terrorist financing cannot participate, or if they are under injunction or criminal indictment for those crimes, or if they are public officials of any level or members of their families.