| BUSINESSWEEK ONLINE : AUGUST 16, 1999 ISSUE | ||||||||
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| INTERNATIONAL -- LATIN AMERICAN COVER STORY
The Taxman Looks High and Low--but Mostly High--for Cheats (int'l edition) Tax Superintendent Carlos Silvani is determined that all Argentines pay what they owe What do Argentine yachtsmen, truckers, and butchers have in common? That's easy these days. They all face the scrutiny of Carlos Silvani, Argentina's hard-charging tax superintendent. With an army of inspectors, Silvani is raiding everything from marinas to cargo warehouses and private helipads. Not even soccer stars and the politically well-connected are immune. Silvani's mission: reducing Argentina's widespread tax evasion, which costs Buenos Aires some $30 billion yearly -- an estimated 40% of all taxes due. Silvani's effort to increase tax revenues is critical to Argentina's economic stability. Mired in recession, the country is battling to control its budget deficit -- and maintain its eight-year-old currency board, which requires that every peso in circulation be backed by a dollar. The sluggish economy has reduced tax revenues by 8% so far this year. And the falloff is accelerating: In June, income tax collection was down 30% from the previous month. By Silvani's estimates, Argentines evade more than $8 billion annually in value-added taxes -- the government's No. 1 source of income -- by not reporting sales transactions. That amount would more than cover this year's anticipated $7 billion budget deficit. Silvani has made progress: Noncompliance in VAT payments has dropped to 26% of potential tax, down from 40% three years ago. His goal is 20% by next year. But reaching that will be tough since the economy should shrink at least 3% this year. In a recession, "for some businesses it will become a choice of whether to pay taxes or pay for supplies, rent, and salaries," Silvani says. Even worse, Argentines are showing no tolerance for paying more. In July, 270,000 truck drivers went on strike to protest a new tax requiring owners of trucks, cars, boats, and aircraft to pay up to 1.5% of the value of their vehicles. Silvani's efforts were undermined when the government of President Carlos Menem gave in to the truckers and postponed the vehicle tax. Silvani's drive, and the Argentine economy, have also been hurt by the lack of reforms to simplify Argentina's tax code and loosen labor laws. The absence of structural reforms "is hurting Argentina's ability to bounce back from this crisis," says Walter Molano, head of research at BCP Securities in Greenwich, Conn. Silvani, a former tax adviser at the International Monetary Fund, started making waves by going after soccer heroes. In 1997, he audited 20 players, including nearly all of last year's World Cup team. He then called friends of President Carlos Menem on the carpet. Silvani charged millionaire beef processor Jorge Alberto Samid, a longtime Menem supporter, with evading $3 million in business taxes and $88 million in personal income taxes. Former Tourism Secretary Omar Fassi Lavalle's two apartments and his restaurant in the mountain resort of Bariloche were raided after he claimed to earn just $3,000 a month. He was jailed in March, 1998, and is awaiting trial. Both Samid and Fassi Lavalle have contested the charges. Silvani now ranks the conspicuously wealthy among his favorite targets. In May, auditors investigated 4,000 boats at Buenos Aires yacht clubs to analyze whether owners had evaded import tax. And he's focusing more on the corporate sector. He's tripling, to 3,000, the number of companies required to submit reports of sales and purchases on monthly diskettes to the tax agency. The data will be used to cross-check claims made by other companies. Meanwhile, auditors are covering the capital's commercial districts block by block. Silvani is even using university students to help check whether truckers comply with tax and licensing regulations. Over time, Silvani hopes to achieve the kind of authority enjoyed by the Internal Revenue Service in the U.S. But skeptics say the tax chief's hands are tied -- chiefly by corrupt and incompetent courts. The collection system is another problem. Provincial authorities pass on all revenues to Buenos Aires, which then redistributes them -- a practice that blunts the provinces' incentive to increase collections. Silvani wants to see the tax system simplified so that it becomes less time-consuming for Argentines to pay taxes. He's also calling for reforms that would clean up the courts and reduce the time it takes tax cases to make their way through the sluggish judicial system. These reforms are clearly needed. And now Silvani is even trying a friendly approach. On July 21, the tax agency said it was launching a plan to allow 250,000 small and midsize businesses to pay taxes at gradually reduced interest rates. That might help, but Silvani still has one of the toughest jobs in Argentina. By Beth Rubenstein Keaveny in Buenos Aires _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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