Background: rampant inflation and the peso's spiraling depreciation
Argentina has had a serious inflation problem for years now. On top of that, an unprecedented drought in the first months of 2023 gave a blow to the agricultural sector, a major economic pillar. Reuters reports that crop failures have made the Argentinian economy lose US$14 billion. The soy harvest this year is predicted to be less than half of the 2021-2022 harvest.
Because of this drought and other more long-term economic issues, Argentina is facing dwindling reserves and a year-on-year increase in inflation of over 100%, which is a first in over 30 years. The government, led by President Alberto Fernández, must now try its best to stabilize the economy before the general elections of October 2023.
According to the country's National Institute of Statistics and Census, consumer prices increased by 104% in the last 12 months. All products in the country are affected by an inflation rate of over 4%. The price of basic food and drinks itself is impacted by an alarming inflation rate of 9,8%. The BBC shows that in the single month of April 2023, the price of milk went up by nearly 13%.
People in Argentina are resorting to strategies like bulk buying, bartering between friends and neighbors, buying on interest-free credit, and investing in high-value goods before the peso in their hands depreciates more. Many are also scrambling to convert their rapidly depreciating pesos into US dollars or cryptocurrency.
El País reports that the value of the peso has dipped to a historic low. You now need over 400 pesos to buy a single US$1! The former largest banknote of 1,000 pesos is now worth only about US$2.5, so the Central Bank had to unveil a new 2,000-peso note in February. Dollars remain difficult to find, so many Argentines are having to buy them on the black market, where the exchange rate runs higher.
Remote workers and freelancers, who include expats in Argentina, appear to have an escape route because they can earn money from abroad. Here's the hitch, though: according to Argentinian law, income in a foreign currency must be converted into pesos for it to be able to be saved in a local bank account and circulate in the local economy.
Remote workers lose out on the perks of earning in stable major currencies (dollars, euros, pounds) if they convert everything to a rapidly depreciating currency. They cannot enjoy the financial safety net provided by these currencies unless they (oftentimes illegally) invest in crypto or hide the money in a foreign bank account. This is why the Argentine government has decided to come up with the Monotech bill, which will regularize the way they can keep a US dollar savings account in Argentina itself.
The Monotech bill would create a three-tiered tax regime tailored to those earning US dollars
First of all, it should be clarified that, if passed, this bill will apply to all residents of Argentina who earn income from abroad, i.e., both citizens and expats. As long as they're legal residents, the same labor and fiscal laws apply to expats.
Monotributo Tech, shortened to Monotech, is a tax regime tailored to knowledge economy services that can be done for clients based anywhere around the world using one's laptop. It concerns professionals like software programmers, translators, video game testers, journalists, researchers, consultants, professional online gamers, scriptwriters, and lecturers working for foreign universities. They often work freelance and on short- or medium-term contracts, often exporting their skills remotely.
These professionals need to have earned less than US$30,000 in the last 12 months to be eligible for the Monotech tax regime. The regime has three tiers: those who earned up to US$10,000 from abroad in a year, those who earned up to US$20,000, and those who earned up to US$30,000. These will count as different tax brackets. Members of all three brackets will legally be able to charge US dollars on their invoices and then keep that money – without converting it into pesos – in an Argentinian bank. They will also be able to withdraw it as cash.
As the money in US dollars will be fully legal, they will also be able to use it to acquire registered movable and immovable property like houses and cars. When workers are forced to “hide” their dollars in crypto or foreign accounts, it isn't possible to use them to pay back a house or car loan. Being able to declare all of their foreign-derived income and paying taxes in a way that's tailored to them will also allow these workers to contribute to a healthcare plan and social security more easily.
The aforementioned reasons are why many labor unions are in support of Monotech. The Computing Union Association (AGC), for example, has said that the regularization of freelance tech workers will “guarantee all workers' rights” and allow them to have bargaining power. Another aspect of Monotech is that it won't require social security and pension contributions from participants in case they are salaried (even if remotely) or are already paying these under the Monotributo fiscal regime.
For the government, Monotech is not only a way to encourage the flow of dollars into the country but also a way to discourage the brain drain of talented professionals, especially those in STEM. If they can earn US dollars while living in Argentina itself, they'll be less inclined to immigrate to the United States or other countries. Monotech would also encourage expat professionals to remain for a longer time in Argentina.
The Monotech bill started being debated in Congress in November 2022. It has since been approved by the lower house, the Chamber of Deputies. Unfortunately, the upper house, the Senate, has decided to postpone its own vote. They are still debating some specificities of the law, and it is facing opposition from big businesses. Among other reasons, big businesses fear that freelancers will start focusing on foreign companies to earn more and stop prioritizing them as partners. It remains to be seen if the bill can be passed before the general elections in October.
