Elections and Civil Unrest in Latin America… and How They Affect Tax Stamps

Never a dull day in Latin America! The recent general election in Argentina saw flamboyant libertarian Javier Milei ascend to the presidency, with a promise to re-invent the Argentine economic wheel by eliminating not only the Argentina peso, but also many ministries and thousands of government employees.

Meanwhile, Panama has been having a rather riotous time since the end of October, when President Laurentino Cortizo decided to maintain Minera Panamá´s mining exploitation rights, despite well-published ecological concerns and public outrage.

This article explores the potential impact of these dramatic events on plans to introduce new tax stamp and traceability programmes in the two countries.

Argentina election

The surprising results of the national elections on 19 November, with libertarian Javier Milei garnering 56% of the popular vote, had many expecting a reduction in the speed of implementation of Argentina’s new tax stamp programme.

It was back in February this year that we heard about a possible cigarette tax increase in Argentina, supported by a new tax stamp and traceability system. Then in late April, the Argentine tax authority Administración Federal de Ingresos Públicos (AFIP), and the state mint and printing company Casa de Moneda Argentina (CAMOAR), announced a public tender for revamping the country’s existing tax stamps with the latest traceability technology and control systems, with the aim of optimising compliance by the tobacco industry.

A recurring issue in Argentina was that while large companies tended to comply with existing laws, smaller ones did not, and the existing tax stamp system was not robust enough to prevent or reduce non- compliance – to the great annoyance of those who voluntarily paid their share.

Hence the need for a system that would provide much better visibility on non- compliant practices.

We subsequently learned that the tender had been awarded to SICPA, and that once the cigarette stamps were upgraded, the government was intending to quickly move ahead with other tax stamp projects, including stamps for alcohol, sweetened drinks, syrups and, eventually, fuel and cannabis products.

With the new presidency, the most positive scenario for AFIP and CAMOAR was for the current situation to remain unchanged. As it was, on 9 December, two days prior to the presidential inauguration, AFIP officialised the launch of its new tax stamps for cigarettes.

This move came as a surprise to many, especially as it would have been unpopular for a new government to immediately implement such a wide-ranging tax stamp renovation programme – with monthly inflation close to 9% and rising price levels already hard to swallow. On the other hand, it was a move that could bring in some much-needed income.

Indeed, Mr Milei’s inaugural speech was crystal clear: ‘tengo que decírselos de nuevo: no hay plata’ (‘I must tell all of you again: there is no money’).

Implementation of the programme is now moving forward at a brisk pace. The new stamp design clearly identifies the CUIT (tax ID) of the manufacturing company. It also uses colours to quickly differentiate between nationally produced and imported products, as well as the number of cigarettes per pack. The physical stamps have three different levels of security plus a new digital traceability system that shows the status of specific cigarette products at a given time.

Argentina’s new cigarette stamp designs.

 

Let’s hope Mr Milei’s government gives a green light to the rest of the tax stamp programme for Argentina.

Panama unrest

In Panama, the situation is quite different for the planned new tax stamp programme.

Elections in many countries can put a damper on pending projects, and Panama is no exception. Although elections will not be held until May 2024, the recent and wildly unpopular decision made by the current president to maintain Minera Panamá´s mining exploitation rights has the country, and most government projects, at a standstill until further notice.

Less than two months ago, many government entities had been rushing to publish pending tenders so that budgets approved during Mr Cortizo’s tenure could effectively be spent. This was the case of the much-vaunted new and improved tax stamp programme, which was rumoured to be launching, first in November 2022, and then, until recently, the last trimester of 2023.

For well over two years, the country’s tax authority, DGI (Dirección General de Impuestos), has been thoroughly investigating and preparing for a new tax traceability tender. This project would not only have modernised the tax stamps currently applied to cigarettes but, more importantly, would have addressed the need for better control of taxes paid on fuel, as well as measure the traceability of said fuel in duty-free areas and during in- country distribution.

As an example, one of the issues behind implementing a modern fuel traceability system in Panama was the ongoing purchasing of subsidised Panamanian fuel for illegal sale in neighbouring Costa Rica. In this case, the recent news of violent protests, the detaining of over 40 fuel carriers in Panama, and Costa Rican authorities halting cross-border traffic until further notice, demonstrate Panamanian authorities’ current inability to guarantee the safety of drivers, vehicles, or merchandise.

The latest pledge by President Cortizo to stop any further mining concessions is a mildly palliative measure, for now, but does not assure tranquility in Panama just yet.

The reality today is that no one appears to be moving forward with the tax stamp tender, or much else for that matter, unless strictly necessary. Government officials are rumoured to be focusing their efforts on the presidential campaign for re-election, while trying to avoid the negative backlash of the unpopular mining rights decision.

With all this going on, the Panama tax stamp tender unfortunately appears to be on hold… again.