The Government sent to Congress the 'Labor Modernization Law', a bill that promotes various labor reforms to update the market and foster formal employment, to which tax reform articles are also added. What does the project include? Creation of the Incentive Regime for Medium Investments (RIMI), which grants benefits such as advance VAT reimbursement and accelerated depreciation in Income Tax for productive projects of up to USD 30 million. Reduction of the Income Tax for Companies rates for fiscal years starting in 2026 from 30% to 27% and from 35% to 31.5%. Elimination of Internal Taxes for insurance, cellular and satellite telephone services, luxury goods, automobiles and engines, recreational or sports boats, and aircraft. Elimination of the two Cessional Taxes (real estate and financial income, except for digital currencies). Elimination of the 10% charge on movie tickets to finance INCAA, among the most relevant measures. The bill entered into Congress will be debated in Extraordinary Sessions and it will be necessary to evaluate what modifications are introduced in the final text. Invecq highlighted that 'in general, the progress towards labor modernization is positive'. He argued that 'they represent an essential step for a market that was already adjusting in fact—private registered employment grew only 3% since 2012, compared to 42% of independent employment'. 'Anyway, it should not be expected that these reforms will boost employment by themselves or immediately, since the boost to employment will continue to be the growth of economic activity', he warned. In parallel, he pointed out that 'the tax changes (beyond the necessary reduction of labor costs through lower employer contributions) are also welcome because they contribute to simplifying an excessively complex tax scheme'. However, the consultancy considered that 'they do not address the core of the distortions, which requires a deeper reform on taxes such as Gross Income, the check tax or withholdings (the reduction announced this week goes in this line, with an estimated fiscal impact of 0.1% of GDP)'. 'These taxes discourage production and investment, but—according to the Minister of Economy—would not be part of a reform in the short term, due to the narrow fiscal margin to reduce taxes that represent almost 8% of GDP', he concluded.
