Urgent reforms needed to help Argentine entrepreneurs succeed
Courtesy of Libertad y Progreso
The reality of Argentine entrepreneurs is arduous. With growing inflation, the highest taxes in the world, Kafkaesque regulations, and overflowing labor costs, it is not surprising that in Argentina only 15% of the economically active population owns a business and that the majority of microenterprises do not exceed two years of life.
This reality worsens if we talk about the ventures of people with low incomes, according to a work done by Libertad y Progreso in association with Atlas Network in the cities of Buenos Aires, Tigre and San Miguel.
That is why Libertad y Progreso, in their work, entitled “Desregular para Emprender” (“Deregulate to Create”) suggests ten measures that local entrepreneurs need and campaign candidates should announce to really make a difference.
1. Make tax payments more flexible: With so many papers, vouchers, and invoices that are issued and certifications of public bodies, the Argentine entrepreneur is totally overwhelmed. Some controls should be eliminated directly as in the case of the COT (Code for Transfer Operations) and IIBB (Gross Revenue). For example, if a truck with merchandise cannot leave for some reason, there should be a grace period for the entrepreneur to continue trading and present the invoice or paper due in the following days. It should not require so many approvals to trade. The fact is that if a certificate cannot be obtained due to an unforeseen event, commerce is totally suspended until the problem is solved.
Even more important is to reorder the times when some taxes are paid, especially IIBB. The problem is one of liquidity. When an entrepreneur sells, he or she must pay IIBB; the problem is that the income from the sale money usually clears three months later, for example when a 90-day check is cashed. This difference suffocates the entrepreneur. In addition, IIBB is one of the most onerous taxes to pay, and ought to be reduced (if not simply eliminated).
2. Lower the requirement of papers, stamps and digitalize the procedures: Many papers must be submitted more than once, which is a waste of time. Once completed, the whole process shouldn’t have to be repeated. For this, it is important to work on internal communication between the different agencies. In other words, when the entrepreneur is going through a certain level of procedures, an internal system should already knows that his or her papers were correctly presented in the previous levels.
There are also complaints about having to carry around a full copy of company bylaws simple to satisfy procedural requirements. To avoid this, it would be advisable to issue a paper or credential certifying that company statutes are in order. Of course, the optimum solution would be to digitize the procedures as much as possible.
3. Unify the criteria for issuing certificates and permits: In the event that certificates approved by state agencies are needed to trade, it is important to find a way to unify this requirement. It is counterproductive to have to present the same certificate four times for a single action.
Citing the specific case of the refrigeration industry as an example, a business has to send practically the same invoice to AFIP, AGIP or ARBA, SENASA, and then again AFIP. It is costly and inefficient. The agencies mentioned are state-owned and should find a way for one of the various agencies to issue the certificate so that SMEs can trade instead of seeking four different (but essentially identical) approvals.
4. Improve communication of tax authorities to the taxpayer: It is true that the ideal suggestion is a reduction in tax pressure. But in addition, it is necessary that information and communication be improved as far as the payment of taxes is concerned. It is not a good sign that if a levy is increased, several entrepreneurs find out three years later with fines and accrued interest. As soon as a change is imposed, communication to the entrepreneur must be clear and immediate.
5. Relax requirements to import and export: Prohibiting imports or exports due to taxes operates against freedom of trade. In a country where so many taxes are collected and macroeconomic imbalances persist, the requirements for paying taxes should be more lenient. Tax regulations should allow at least a minimal margin of debt. Otherwise, businesses must borrow — sometimes at high rates — in order to pay taxes in order to import.
6. Simplify qualifications for importers: Just as it is important to unify certificates to trade, it would also be good for organizations seeking authorization as importers to have unified approvals. Again, there is an excess in the bureaucracy that importing a refrigerator requires authorizations from Customs, SUCCA and SENASA.
7. Unify audits: Audits are necessary, but the requirements of the auditors should be similar. In our example case we found that, on the one hand, SENASA requested an ideal temperature for the refrigerator, while Buenos Aires requested another. All these details continue to add to the amount of information that an entrepreneur must deal with and takes away human capital to create wealth. The optimum would be to aim for a single system to deal with this.
8. Encourage training: It is key to encourage training for entrepreneurs to improve their business. Training courses are available, but there is little communication to let people know they exist. Or in more complicated situations, for example in the most vulnerable neighborhoods, a small business owner may lack time due to family or housework. In the latter case, training organizations need to offer more flexibility and resources to help them. They should also train not only in legal and financial matters, but also in the use of technology and networks to boost sales.
9. Establish emergency banks: An alternative could be that the Municipality or an NGO can grant some type of credit solely for instances where a health problem makes it impossible to work. Of course, this should have a limit of months and effective control to discourage fraudulent claims of disease . That is also why it is important that the loan carry an interest rate (low).
10. Implement a “MiniJobs” type plan: In 2003, Germany implemented what was called the “MiniJobs” — low-paid contracts, but with a maximum of 15 hours of work per week. The salary for that job was €400 (62.5% of the minimum wage). Assuming a 9-hour workday, a third of a full day is required to obtain that salary. It was mainly limited to distributors, household cleaners, child or elderly caregivers, waiters, and so on — that is, jobs that do not require higher qualifications.
The objective of this measure is to function as a kind of bridge job until the worker can get a better job, or that provides additional income to another job. For now, it would be good to foster a work culture in order to reduce the number of people who depend on public plans. That is, this measure should also be thought of as a bridge (that works) and temporary (a priori) job. In September, an annual minimum wage in Argentina was pegged at $15,600; that makes it very difficult for the private sector to be competitive compared to what can be received by a social plan.
In order to apply a similar idea in Argentina, at least the following requirements should be met:
- End macro imbalances with structural reforms; the proposal would be to find that the salary of the “MiniJobs” is around 65% of the Minimum Vital and Mobile Salary for working three hours;
- Unlike the German case, the employer only pays a symbolic tax (2-3%), since the tax burden in the private sector is enormous;
- If someone who has a social plan accesses a “MiniJobs”, start charging a smaller proportion of the social plan.
- Allow people to have more than one “MiniJobs”. If a second “MiniJobs” is added, the proportion charged by a social plan would be reduced again. If you charge a third “MiniJobs”, that person is already practically employed because he or she would work nine hours and would no longer receive the social plan in its entirety. Above all, encourage the training of workers to be permanently employed.
It is important to think about the possible solutions, but also the possible risks that they could bring. We must be very attentive to “what is seen and what is not seen” to avoid making mistakes. Among the potential risks that a “MiniJobs” measure could bring are the following:
- That the salary of the “MiniJobs” be paid and that the person works more hours in the black market;
- That the situation be exploited to show a supposed “drop in unemployment”.
In addition to these ten concrete proposals, we should also aim to continue reducing the number of procedures even further to the minimum possible. In this sense, we need to change our overall mentality.