I just read a very interesting analysis about the actual margin the Argentine government has to cut taxes. And the truth is that the story is more complex than it seems at first glance.

Milei has been speaking loudly about comprehensive tax reform, with the whole discourse that they need fewer taxes so that the tax system serves growth. But when you dig into the numbers, you realize there are quite serious restrictions. The Executive must maintain a primary surplus of 1.5% of GDP—that’s a key goal with the IMF—and this is where the real problem begins.

Just last February, tax revenue fell for the seventh consecutive time in real terms. We’re talking about a 9.7% year-over-year decline. Excluding taxes linked to foreign trade, the drop reaches nearly 7.8%. This paints a scenario where the fiscal maneuvering room is narrower than it sounds in speeches.

What few understand is that the fiscal reform that can be pushed from the national level is quite limited. The most important taxes—Income Tax and VAT—are shared with the provinces, meaning any change requires consensus with them. In the first quarter of 2025, these two taxes accounted for 81.1% of total revenue. When they tried to lower rates on Income Tax for companies in the labor reform, the governors raised a fuss. The fiscal impact was 0.22% of GDP, about 1.9 trillion pesos. Result: they removed that measure from the bill.

There are two taxes that experts point out as truly distortionary. First, the Gross Income Tax—that’s practically the backbone of provincial revenue, representing 78% of their own income. Second, the Check Tax, which accounts for around 1.7% of GDP. Both have a brutal cascading effect on the economy, but removing or truly reducing them requires significant compensations.

What’s interesting is that the government has already made some changes in labor reform: they eliminated internal levies on telephony, insurance, and automobiles. And according to estimates, they will reduce national taxes from 45 to 37 by 2028. But these are low-revenue taxes; they don’t move the needle much.

Regarding Export Duties for agriculture, which Milei wants to keep lowering, the point is that they are not shared—100% go to the Nation. But any reduction involves finding substitute revenues or cutting more spending. After they eliminated the PAIS tax at the end of 2024, the margin shrank even further.

Experts agree that if there is fiscal space, the most viable measures would be administrative simplification rather than direct rate reductions. Increasing withholding thresholds, easing ARCA’s authority to collect taxes in advance, reducing perception regimes—all without touching numbers that threaten the surplus.

The reality is that a real fiscal reform in Argentina hits two walls: the need to maintain fiscal balance and federal negotiations with provinces that depend on those resources. It’s not impossible to move forward, but it will be gradual, selective, and probably focused on lower-weight taxes or bureaucratic simplification. The government has tools, but not as many as the discourse suggests.