Local Government’s Taxing Power

Mónica Iturburu, Universidad Nacional del Centro de la Provincia de Buenos Aires

Relevance of the Practice

The National Constitution (NC) recognizes three levels of government – nation, provinces and municipalities – and assigns to the provinces the majority of taxing powers. The federal government (FG) has exclusive and permanent authority over import and export duties and is authorized to collect direct taxes on an exceptional basis and indirect taxes together with the provinces. Provinces also have permanent jurisdiction over direct taxes. Regarding local governments, Article 123 of the NC states that each province dictates its own constitution, ensuring municipal autonomy and regulating its scope and content in the institutional, political, administrative, economic, and financial order. Some authors say that this article implies the express recognition of the local government’s original taxing power.

Despite the constitutional provisions, the FG holds the most significant taxing power in practice. At the beginning of the national organization, due to the separation of tax sources and the concurrent power to collect internal taxes, the provinces held a high degree of autonomy. This autonomy remained until 1934; since then, successive laws have been restricting it. The most outstanding is the Federal Tax Revenue Share Law no 23.548, enacted in 1988, which has been modified several times and is still in force. This law limits what can be taxable or not for the two most critical provincial taxes. Since 1993, provincial autonomy has been reduced to its minimum expression by signing the Fiscal Agreement that added more restrictions for all provincial taxes, establishing restrictions on average rates, and forced the elimination of taxes. The Fiscal Consensus I (signed in 2017) reinforced this strategy,[1] later partially made more flexible by the Fiscal Consensus II in 2018. All these legal instruments were ratified by the provincial authorities.

The taxing power concentration in the FG reduces the scope to which provinces can exercise their power since they are prevented from creating similar taxes to the ones collected by the FG. Municipalities also face this prohibition, created by the law no 23.548, except for all charges and administrative fees for services (Article 9(b)). Furthermore, the fact that the legal provision comes from a commitment assumed by the provincial level, without local government’s participation, reinforces la subjugation of municipal autonomy.

According to law no 23.548 (Article 9(g)), provinces must establish a system for distributing revenues received from the FG among the municipalities in their territory. This system must determine the indices for the distribution of funds. In compliance with this commitment, twenty-two out of the twenty-three provinces have established a revenue share system, in some cases, with several years of delay and due to court orders. The instituted systems are very varied. Each province distributes among the municipalities the federal revenues they receive, in percentages that go from 8 per cent to 26 per cent. Provinces also redistribute the taxes they collect , such as the gross income tax. Some jurisdictions transferred the collection of some taxes to the municipalities (for example, one province did so with the gross income tax and seven with the real land tax). Only a third of municipal revenues come, on average, from their own sources, and in recent years the level of self-financing has decreased.[2]

The criteria for assigning resources to municipalities (secondary distribution) are also very heterogeneous, but the compensatory criterion (69 per cent) dominates widely, distributing resources based on variables that allow a certain approximation to the level of expenditures. Although the most used is the population, a third of the regimes establish formulas that favor the less populated municipalities by distributing additional funds based on the ‘distance from the capital’, ‘rural population that receives services from the municipality’, ‘inverse to population’, ‘inverse to population density’, or distributions in which a portion of the shared mass is allocated excluding the capital city. However, the percentages that are distributed according to these criteria are always marginal (between 1 per cent and 10 per cent).

Description of the Practice

The tasks carried out by the municipalities have increased since the 1990’s, when the federal and provincial governments transferred functions to them. In some cases, it resulted from formal processes (such as health or drinking water). In many others it resulted from transfers made only in practice due to the lack of sufficient services from the competent jurisdiction and the public expectation deposited at the closest level of government. The most recent example corresponds to internal security, a provincial competence progressively carried out by municipalities – sometimes encouraged by the provincial orbit. It includes the provision of resources for the provincial police’s operation, the installation of monitoring centers, and the creation of armed patrols. Depending on its size and location, municipalities carry out different responsibilities that do not correspond to them. This progressive appropriation of greater functions was not compensated with the provision of equivalent resources, generating financial shortcomings that led those municipalities most affected to seek alternative sources of income.

The contrast between the increase in functions municipalities have to deliver and the restriction established by law no 23.548, limiting the taxing power to the remuneration rates for services, generated a process of manifest deformation of the concept of ‘charges and administrative fees’.[3] Municipalities have begun collecting fees for services delivered that, due to their taxable events, absence of territorial contact, calculation bases, and taxable categories, looked a lot like provincial and federal taxes. Different judicial bodies created resolutions that acknowledged exceptions that allowed municipalities to charge fees for potential services or had a very generic tax base.[4] Nevertheless, the judicial power has also stopped the municipal tax collection aspirations. For example, a road fee was applied to the sale of fuels in several municipalities, which was considered unconstitutional by some courts and resisted by gas station’s owners and users, generating a wave of interruption of the application and inhibition of those who planned to enforce it. However, these policies are rarely initiated in small municipalities, which themselves do not have sufficient capacities to increase the tax burden on their residents. Added to this is the lack of autonomy, due to the fact that most provincial constitutions only recognize it in local governments that exceed a population floor. However, if the tax innovation initiated by larger municipalities is little resisted, it tends to be replicated in small local governments.

Assessment of the Practice

In summary, municipalities face a scenario of deregulated functions and regulated income. Since municipalities are the first representation of government that citizens have and mainly act on the field, when is possible they continue to assume new tasks, sometimes reallocating resources from their own and non-delegable functions. To a large extent, the insufficient collection is explained by the weakness of the tax systems that are conditioned, in part, by rules of a lower rank than the constitutional one. The significant positive correlation between the economic development of the jurisdictions and their degree of self-financing has been evident during the Covid-19 pandemic, which accentuated the differences between the municipalities with the greatest capacities and those that lagged behind. Faced with this scenario, many rural municipalities could not provide a satisfactory response to a population that had to face social, preventive and mandatory isolation without digital, banking or basic health infrastructure, generating a negative impact that is still difficult to measure.

References to Scientific and Non-Scientific Publications

Altavilla C, ‘El sistema tributario argentino’ (2019) 10 Revista Facultad 171 <https://revistas.unc.edu.ar/index.php/refade/article/download/27885/29172/83136>

Directorate for Analysis of Provincial Debt and Municipal Finances, ‘Regímenes provinciales de coparticipación de recursos a los gobiernos locales en Argentina’ (Ministry of Economy and Public Finance – National Directorate for Fiscal Coordination with the Provinces 2014) <https://www.economia.gob.ar/dnap/municipios/documentos/regienes_provinciales_de_coparticipaci%C3%B3n_de_recursos.pdf>

Iturburu M, ‘Descentralización y relaciones intergubernamentales en Argentina: condicionamientos históricos y situación actual’ (19th International CLAD Congress, Quito, 11-14 November 2014)

López Toussaint G, ‘La crisis del federalismo fiscal argentino y los problemas de atribución de potestades tributarias entre los tres niveles de gobierno. Necesidad de reforma del sistema tributario, como procurar una mejora en la recaudación, en la responsabilidad fiscal y una mayor correspondencia fiscal de las provincias y municipios. Los regímenes de coparticipación federal y provinciales de impuestos, su reformulación’ (21st Congreso Nacional de Profesionales de Ciencias Económicas, San Miguel de Tucumán, 28-30 September 2016)

Porto A, ‘Autonomía Fiscal Provincial en la Argentina. ¿Federalismo o Centralismo?’ in Alberto Porto (ed), Temas de políticas públicas (Universidad Nacional de La Plata 2019) Pulvurenti O, ‘Tasas Municipales: Decisiones de CSJN y dispersión jurisprudencial’ (Sistema Argentino Información Jurídica 2019)


[1] Alberto Porto, ‘Autonomía Fiscal Provincial en la Argentina. ¿Federalismo o Centralismo?’ in Alberto Porto (ed), Temas de políticas públicas (Universidad Nacional de La Plata 2019) <https://www.mfp.econo.unlp.edu.ar/wp/wp-content/uploads/2019/08/POLIticas-PUBLIcas-Porto-DIGITAL-web.pdf>.

[2] Directorate for Analysis of Provincial Debt and Municipal Finances, ‘Regímenes provinciales de coparticipación de recursos a los gobiernos locales en Argentina’ (Ministry of Economy and Public Finance – National Directorate for Fiscal Coordination with the Provinces 2014)             <https://www.economia.gob.ar/dnap/municipios/documentos/regienes_provinciales_de_coparticipaci%C3%B3n_de_recursos.pdf>.

[3] The concept of ‘tasa’ was translated as ‘charges and administrative fees’.

[4] Orlando Pulvurenti, ‘Tasas Municipales: Decisiones de CSJN y dispersión jurisprudencial’ (Sistema Argentino Información Jurídica 2019) <http://www.saij.gob.ar/orlando-pulvirenti-tasas-municipales-decisiones-csjn-dispersion-jurisprudencial-dacf190051-2019-02-21/123456789-0abc-defg1500-91fcanirtcod?&o=23&f=Total%7CFecha%7CEstado%20de%20Vigencia%5B5%2C1%5D%7CTema/Derecho%20tributario%20y%20aduanero%5B3%2C1%5D%7COrganismo%5B5%2C1%5D%7CAutor%5B5%2C1%5D%7CJurisdicci%F3n%5B5%2C1%5D%7CTribunal%5B5%2C1%5D%7CPublicaci%F3n%5B5%2C1%5D%7CColecci%F3n%20tem%E1tica%5B5%2C1%5D%7CTipo%20de%20Documento/Doctrina&t=421#>.

keyboard_arrow_up