PAYROLL & HCM | 4 MIN READ

Focus On Argentina's Income Tax Situation: When a Salary Increase is Not Good News

By Maria Laura Martel Barcia, LATAM HR Partner, STG

November 2016

The Employee Perspective 
Most employees anticipate the coming of a pay raise or receive the news of a promotion or a salary increase with excitement and honor; however, this is not the current mindset for the Argentinean workforce that has never before reached a salary level that requires payment of an income tax.

Today’s income tax law is the main cause of frustration among those Argentineans who receive a pay increase, are asked to work overtime or are issued a bonus.  The reason is the lack of equity; the pay raise equals a higher tax.  There are no monetary advantages to an increase in pay.

Employees do not always have an opportunity to decrease their personal percentage of income tax that is being withheld.  In addition, they may not be aware of tax advantages, if they do exist.  The inflation is literally eating the salaries of those without exemptions.  For example, if you are single your salary will be decreased significantly per a progressive percentage table that the government has designed and issued.  Depending on the salary range, wages are decreased according to the table and, up to 35% of your salary could be going to taxes.

This situation is recent to some employees, where in the past only the Argentineans that earned higher salaries paid the income tax.  This change is due to rise in inflation and in order to keep up with the cost of living; the salaries have been forced to grow.

This inequity is not the only item impacting the employee and their paycheck.  Employees are now faced with having to hire an accountant to prepare taxes for them.  These additional costs can be a burden for those who are working and living paycheck to paycheck.  Employees of global corporations might be able to afford such expenses however; this is not the case for all income brackets.

The Employer Perspective
The last 16 years of inflation has left the income tax structure with distortions that impact the equity for the employee as well as the employer.  As employees earn higher salaries the employer must take more out of the earnings to pay towards taxes.  Employers are responsible for the calculation and the presentation of these amounts to the Tax Authority.

This situation is a tremendous challenge for the companies that operate in Argentina where ‘nothing is enough’.  Global companies that already provide one official pay increase across the board now must consider an additional review to try to compensate for differences that in the end do not close the gap.  Wage increases are not real under the current system because the government is taking the difference.

Employers want to foster employee satisfaction while they also need to meet the tax law requirements.  Employers are doing all they can to manage employee satisfaction or what we call emotional salaries.  Employers are offering flexible schedules, paid time off and on the job meals.  Although these benefits are nice they are emotional, not monetary.  These benefits may not be as helpful to all workers for example; a union driver or a teacher cannot take the time off or work remotely.  Employees want to benefit from a monetary increase, they just can’t right now.

“Employees want to benefit from a monetary increase, they just can’t right now.” 
-Maria Laura Martel Barcia, LATAM HR Partner, STG

The inflation rate is on its way to be under control, this alone is not enough for workers in Argentina.  President Macri has inherited this situation and he has made some changes and increased the minimum allowance.  There are still major changes that need to be made to the progressive table in order for employees to have the income that they deserve, and that will be up to the Argentinean Congress.

Years ago, when this tax was implemented, only the top management was paying this rate, now the administrative employees and others who fall into the lower salary ranges are paying taxes as well.  This is a perfect example to see how far we are from the equity that is needed.

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