How does the government's reduction in withholding taxes impact the economy?

Export duties, commonly known as withholding taxes , are taxes levied on the sale of goods and services abroad. In Argentina, the most common method of applying this type of tax has been through the ad valorem method, which involves a tax base in monetary units and a percentage tax rate.

There are various arguments that attempt to justify its implementation: generating fiscal resources, capturing extraordinary revenues in contexts of devaluation, incentivizing industrialization through differentiated rates, stabilizing domestic prices in volatile international contexts, and protecting nascent industries, among the main ones.

The introduction of export taxes generates significant microeconomic effects on the market for exportable products, which subsequently impact various macroeconomic variables. First, the tax reduces the quantity of an exportable good produced, increases domestic consumption, decreases the quantity exported, increases tax revenue, generates a loss of efficiency in the economy through reduced production, and also potentially impacts distributive equity.

Throughout Argentina's history, national governments have frequently used export duties to achieve one or more of the aforementioned objectives, increasing the share of indirect taxes in the national tax structure, especially in international contexts of high dollar prices for products in which Argentina has enviable resources and specific production know-how, such as agricultural products.

With several modifications throughout its history, particularly in terms of implementation and the value of the rates, the current export duty regime basically dates back to 2002. Although the tax was initially introduced as a "temporary or emergency" measure due to the Argentine crisis of 2001, it has now been in existence for more than 20 years and has become an important source of resources for financing national public spending.

What relative importance has the collection of export duties had in Argentina?

Export duty revenue began a rapid rise in 2002, reaching 2.45% of GDP in 2004, taking into account the cumulative figure for the previous 12 months (i.e., one year). This trend was influenced by the evolution of international commodity prices and the exchange rate. In that year, it represented 15% of the national government's tax revenue and 17.5% of primary spending . The fiscal result of the national public sector was positive, equivalent to 2.4% of GDP.

Subsequently, it declined to around 2% of GDP at the end of 2007. The following year, in 2008 , the highest effective tax burden was recorded, at 3.17% of GDP . Its relative importance increased, reaching 16.3% of tax revenue and 18.2% of primary expenditure . During this year, the public sector recorded a surplus of around 0.5% of GDP.

After the peak effective tax burden of the tax, it began a downward trend, reaching a low of 0.43% of GDP in January 2018, due to the combination of international prices, falling tax rates, and drought. At that time, tax collection represented 3.4% of tax revenue and 2.6% of primary spending, very low ratios compared to previous years.

Tax collection would then return to a new growth cycle, driven by higher international prices and higher tax rates, reaching 2.1% of GDP in December 2021. Finally, a further price reversal and a significant drought would reduce tax collection to around 0.4% of GDP by the end of 2023. Regarding national government tax revenues, the share was 5.4%, and regarding primary spending, it was 4.1%.

Currently, the tax burden from withholdings, taking into account the cumulative figures for the last 12 months, is 0.95% of GDP , one of the lowest in the series. It is equivalent to 6.8% of tax revenues and 7% of the national government's primary spending .

From a fiscal perspective, what does reducing export duties mean?

The reduction of export duties generates multiple fiscal effects, both direct and indirect:

An important aspect relates to the impact of increased production on international prices. If a country, by increasing its production, generates additional supply that lowers international prices, the impact of the increased tax base resulting from increased exports is reduced.

In the case of inelastic supply, i.e., without a response from production to higher prices, this indirect effect obviously does not exist.

How much of what is directly lost can be recovered by reducing export duties?

In a previous study, it was estimated that, in a unitary supply elasticity scenario, up to 80% of the revenue initially invested can be recovered by lowering fees. This potential additional revenue is divided among the three levels of government. In the case of inelastic supply, the recovery is much lower.

Therefore, the initial fiscal loss is not the final one, as the tax system absorbs part of the impact through increased economic activity and producers' income . The national government partially loses the direct fiscal cost of the decrease in export duty collection, and the provinces and municipalities (which do not directly participate in export duty collection) benefit: they would receive higher revenues from increased collection due to the reduction of a non-shared national tax. The increase in collection occurs both through co-participation and through their own collection.

Recently, the national government announced export duty reductions, the most significant from a fiscal perspective being those on the soybean complex . There are two relevant aspects to consider regarding the fiscal impact: the liquidation of existing stocks this year and the possible production response in 2026.

For 2025, the maximum fiscal cost could be around 0.10% of GDP , taking into account indirect effects 1 (larger tax base for income tax) and 2 (higher income for producers). That is, depending on how the additional income is used, revenue from other taxes should increase.

For 2026, given that planting decisions must be made, the maximum fiscal cost could be around 0.2% of GDP. In this case, indirect effect 3 (higher production, only if supply responds) could potentially arise, generating a larger tax base for export duties, resulting in greater revenue recovery, regardless of the recipient government levels. Obviously, climate factors and international prices will play a key role. In an ideal scenario, overall actual revenue may decline only slightly.

This year, the government began a path to lowering the tax burden with the PAIS tax and has now continued with export duties. Beyond maintaining the relative weight of public spending as the source of financing for the lower tax burden, the broadening of the tax base , both through increased activity and greater incentives to pay taxes, can also contribute significantly.