By Bianca Fernet,The Bubble:
Back in September 2012, Argentina introduced a 15 percent tax on credit card purchases made in foreign currency. They claimed that this 15 percent would be returned to tax payers demonstrating they had paid more than they owed in the previous year. Shockingly, that reimbursement was such a bureaucratic hassle that for many people it just never came to fruition.
And instead, that 15 percent turned into 20 percent.
Now, the Federal Administration of Public Revenue (AFIP) is raising the charge to 35 percent and applying it to purchase of physical foreign currency for travel costs. This closes the last legal window (albeit small) for individuals to acquire dollars at the official rate.
The Argentine press is abuzz with this story, especially because it will directly affect the tens of thousands of families planning to travel for the Christmas holiday. Where yesterday one dollar would have cost $7.39 pesos, today the “dólar turistico” will set them back $8.36 pesos.
That’s a hefty difference sure, but from where Economy Minister Axel Kicillof is sitting, it’s logical. Every time an Argentine uses his (or her) credit card para todos y todas to make a purchase in dollars, the seller is not stuck footing the bill for the exchange rate difference. That seller receives the appropriate sum in dollars for the purchase. Those dollars are provided by the Central Bank vis-á-vis the buyer’s local bank, thus draining Argentina’s slimmer-by-the-second foreign currency reserves.
Come at it a different way – let’s say Agustín is in Buenos Aires and has US$5000.00 he wants to spend in Miami on Blackberrys and bottle service at a swinging club on South Beach. If Agustín is smart, he will change those dollars into pesos at the “blue rate” (or black market rate,) and deposit $47,500.00 pesos into his bank account at Banco Ciudad.
Then, Agustín will fly to Miami, buy a sweet Blackberry with his Banco Ciudad card, score the BBM pin numbers of the few “honeys” that still use Blackberrys, hit up a few more ladies on Whatsapp, and paint the down celeste y blanca.
Because Agustín rolls deep, he will spend the entire initial amount. Except yesterday, that sum of US$5000.00 would have suddenly become US$6427.60, whereas today it would only become US$5681.81.
More simply, with a 20% tax on foreign expenditures, Agustín’s cheeky little arbitrage play looked like this:
- US$5000.00 –> ARS $47,500.00 –> US$6427.60
Today with a 35 percent tax, it looks like this:
- US$5000.00 –> ARS $47,500.00 –> US$5681.82
Now, I know what you’re thinking. Most Argentines are not like Agustín, and do not start out with US$5000. They start out at step two, with the pesos, and have now lost 15 percent of their spending ability overseas. And yes, that’s true.
Moreover, Ricardo Echegaray, Director of the AFIP, publicly declared in August that the 20 percent tax would not go up after the election. “Absolutely not,” he said.
But strip away the politics and the promises and look at the reality. It takes 10 pesos to buy 1 dollar. If anyone, be they an elected official or government functionary, tells you otherwise, THEY. ARE. LYING. They are buying votes and support with a fantasy.
So look at the silver lining and be glad that 35 percent isn’t 55 percent, and send the government a holiday thank you via Whatsapp (or BBM) for the slightly less expensive international vacation. By Bianca Fernet, The Bubble.
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.