Argentine tax plan called money-laundering danger

An Argentine plan to boost tax revenue and stimulate the economy by enticing home offshore assets, with a no-questions-asked policy, is drawing fire from critics who say it could stimulate money laundering instead.

Argentine lawmakers began debating on Wednesday the bill sent by President Cristina Fernandez, one of a series of measures aimed at protecting the economy from the global slowdown by increasing investment and consumer spending.

With capital flight estimated at US$20 (NZ$37) billion this year and as much as US$140 billion in Argentine funds held offshore, the government wants to offer steep tax breaks to people and companies who declare their offshore investments.

The government has not said how much money it hopes to raise, but critics say the plan opens a can of worms because people who repatriate funds they parked offshore would be free of any investigation into the source of the money.

"The way it is worded the law is dangerous, at a time when drugs are advancing in this country, in terms of production, trafficking, consumption, financing of political campaigns and the presence of Mexican cartels," said political analyst Rosendo Fraga.

Argentina has largely been spared the drug violence of some Latin American countries, but in recent months sensational murders and arrests of alleged drug traffickers have shaken the country's sense of complacency.

Fraga also doubted the tax breaks would boost the economy since recent economic policies – such as a surprise nationalisation of the private pension fund system – have generated uncertainty about investing in Argentina.

Fernandez's ruling Peronist party and its allies have majorities in both the lower house and the Senate, but it was not clear whether the bill would get a smooth ride.

"Today Congress will vote on the worst amnesty law for corrupt people and money launderers," said opposition leader Elisa Carrio, of the Civic Coalition.

Argentina's basic tax rate on earnings is 35 percent, but the plan offers rates as low as 1 percent for assets that are repatriated and invested in industry, infrastructure or farming.

The same bill also sets out tax breaks for companies that put under-the-table workers on to the payroll. In addition, the government would drop prosecutions of individuals and companies who agree to long-term, low-rate plans to pay off back taxes.

Critics, including two former economy ministers under Fernandez and her husband and predecessor ex-President Nestor Kirchner, say those deals would punish those who followed the rules all along.

US Ambassador Earl Anthony Wayne initially said his country was watching the proposal closely, but this week he told reporters he was confident Argentina would continue to be a good partner in the battle against money laundering.

Argentina is a member of the International Financial Action Task Force, or FATF, an inter-governmental body that develops policies to combat money laundering and terrorist financing.

"Argentina's money-laundering law is in force and will continue in force. Argentina is not renouncing FATF norms or its commitments regarding money laundering and international terrorism," Cabinet Chief Sergio Massa said on Wednesday, in defense of the bill.

The Argentine economy grew by leaps and bounds over the last six years, but growth in tax revenue has slowed, as has industrial production.

The government has announced a US$21 billion public works programme and subsidized loans for car purchases, to preserve jobs in a tough global environment.

Source: STUFF