Argentina seeks luxury tax as it vows to conserve dollars

BUENOS AIRES Fri Nov 22, 2013 11:06am EST

BUENOS AIRES Nov 22 (Reuters) - Argentina's government is sending a bill to Congress that would increase taxes on high-end cars and other imported luxury goods, Cabinet Chief Jorge Capitanich said on Friday, in the new economic team's first apparent step to conserve dollars.

Capitanich on Thursday said President Cristina Fernandez's leftist government is mulling measures to stop the flight of dollar reserves, which have fallen nearly 30 percent this year despite strict currency controls.

The government uses reserves to pay creditors, import energy and prop up the official value of the peso.

The tax proposal is focused on decreasing consumption of imported goods, an apparent strategy change from a government that previously targeted importers with strict limits and steep tariffs to try to preserve a trade surplus and keep dollars from leaving the country.

"The law changing internal tax rates on luxury goods, mainly high-end cars but also boats and airplanes, aims to establish a different tax value that naturally implies a disincentive for acquiring those goods," Capitanich said during a press conference.

He declined to give the proposed tax rates. Luxury car buyers currently pay taxes of between 10 and 12.5 percent of their cars' value.

Fernandez's supporters suffered heavy losses in an Oct. 27 mid-term election in Congress but still have a simple majority, meaning the tax proposal would likely pass.

As many Argentines have lost confidence in the peso currency and do not have access to dollars, they have spent their paychecks on imported cars as a hedge against rising local prices. Private economists estimate inflation at around 25 percent in Argentina.

Capitanich, who has been the government's most vocal face since being sworn in on Wednesday, reiterated the government's goals of encouraging domestic industrial production and more equal wealth distribution in Latin America's No. 3 economy.

Economy Minister Axel Kicillof, also sworn in this week, said on Thursday the government needed to find a way to generate more dollars.

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