Could Argentina's planned investment regime trigger a mining rebound?
Argentina's mining industry is divided on an incentive regime for large investments (Rigi), which now incorporates an increase in mining royalties from 3% to 5% and is part of the framework law, currently debated in the senate.
Actors like mining chamber CAEM applaud the tax, customs and foreign exchange incentives, in addition to the regulatory stability to be granted for 30 years for projects of at least US$200 million, but deem the royalties increase a threat to competitiveness.
The increase is not warranted in light of the "high tax pressure" in the country, CAEM said in a statement. The total tax burden of mining companies exceeds 50%.
The mining minister of San Juan province, Juan Pablo Perea, on the other hand, supports the increase as it would favor provincial governments that have autonomy to manage mining in their territories. "The 5% royalty increase is not mandatory, it is optional for the province," Perea told local media, adding that Rigi would help generate jobs and create productive chains for local suppliers.
In a 2023 report, the UN's Eclac ranked Argentina sixth in the region with respect to foreign direct investment.
FDI has been hampered by “exchange restrictions and the constant modification of rules that have generated distrust and uncertainty among investors,” according to a KPMG report.
Analysts anticipate that the senate will pass the framework law and it will be promulgated. Chief of staff Guillermo Francos said a final resolution will be announced in July.
Rigi
Rigi establishes an income tax rate of 25%, compared to the current 35%, and will allow accelerated depreciation of assets, infrastructure, mines, among others, as an incentive.
"Instead of making the income tax deduction for the wear and tear of machinery in 10 years, it can be done in two years," public accountant Juan Pablo Futten wrote in a column.
The regime also reduces the rate on dividend payments from 7% to 3.5% after seven years and enables the possibility of paying VAT with tax credit certificates. In addition, it eliminates duties for both the import of goods and inputs and for exports in the first three years after a project is admitted, as well as other exchange rate benefits.
However, these aspects, considered incentives, "in other economies, constitute normal aspects of their legal systems (such as freely disposing of the foreign currency generated from the collection of their legitimate exports, or being able to dispose of the profits originating from their activities)," the KPMG report said.
Investors must apply to join the Rigi and submit an investment plan.
Mining investments and exports
Canadian think tank Fraser Institute ranked Argentina the fourth most attractive country for foreign mining investments in 2023, boosted by the provinces of Jujuy and Salta.
Argentina is seven places ahead of Brazil and 16 ahead of Chile. Together with Canada and the US, it is a country which increased its potential. The Fraser Institute considered 86 jurisdictions.
However, Argentine mining exports registered an interannual drop of 14% in the first four months of the year, accumulating US$1.13 billion, which was 6.2% lower than the January-April average between 2010 and 2023, according to the country's mining department.
The sector represented almost 5% of total exports in the first four months of the year.
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