Argentina’s Milei reduces key import tariff to curb inflation

Argentina is reducing a key import tariff in a bid to further cool inflation as President Javier Milei weighs the trade-offs between economic goals that are often conflicting.

Economy Minister Luis Caputo announced it would cut a levy known as the PAIS tax on imports from 17.5 per cent to 7.5 per cent. The Milei administration had actually raised the tax after assuming office on Dec. 10 to boost federal revenues and close a fiscal deficit, but the higher tariff has driven up prices on imports.

Milei’s main priority is to curb runaway inflation that hit 26 per cent per month following his currency devaluation last December but has since eased to 4 per cent by July. However, his austerity measures aimed at achieving a fiscal balance, such as removing subsidies on home utilities and public transit, risk pushing prices up.

Reducing the import tariff could help ease price pressures as Milei proceeds with subsidy cuts in an effort to both lower inflation and close the deficit.

The libertarian also promised during his campaign to reduce taxes, making the move a symbolic gesture to voters that he has kept his word.

More broadly, cutting the PAIS tax is a small step in Milei’s efforts to normalise Argentina’s economy as the government seeks a new agreement with the International Monetary Fund to replace the existing $44-billion deal. So far, negotiations on a new program haven’t advanced in concrete terms while Milei maintains currency controls on a peso that Argentines perceive as overvalued.

Through July, the government has collected 4.3 trillion pesos ($4.5 billion) in revenues from the PAIS tariff, which accounts for around 6 per cent of total tax revenues, according to government data. The tax is applied to a range of transactions beyond imports.

Still, Milei and Argentina have a long way to go. For instance, the PAIS tax is applied at a different rate when Argentines exchange pesos for dollars at banks. That rate isn’t changing for now, nor is the $200 monthly limit that Argentines can exchange as Milei maintains currency controls.