BUENOS AIRES, May 2, 2025 (Reuters) — Argentina's Congress approved President Javier Milei's corporate tax reform bill on Thursday, cutting the corporate income tax rate from 35% to 25% over three years and eliminating the separate dividend withholding tax — the administration's first major legislative victory on economic policy since taking office 16 months ago and a potential template for future reforms.

The bill passed the Chamber of Deputies 134-118 after a 16-hour debate that stretched from Wednesday afternoon into Thursday morning, with Milei's La Libertad Avanza coalition securing support from 12 provincial Peronist deputies in exchange for guarantees that federal revenue-sharing transfers would not be reduced and that provincial infrastructure projects would be prioritized.

"This is the most important tax reform in 30 years," Milei said in a televised address from the Casa Rosada's White Hall, flanked by Economy Minister Luis Caputo and a group of small business owners. "For decades, Argentine businesses paid some of the highest taxes in the world and got nothing in return. Now they get to keep what they earn, invest what they keep, and hire who they need. This is how economies grow."

The reform reduces the standard corporate rate in annual steps: to 30% in 2026, 27% in 2027, and 25% in 2028. A companion measure eliminates the 7% dividend withholding tax, reducing double taxation on distributed profits. The government projects the reform will cost approximately 1.5% of GDP in forgone revenue but argues that improved compliance, reduced evasion, and increased investment will offset much of the loss within five years.

Business groups welcomed the measure. The Argentine Industrial Union (UIA), which represents manufacturers employing 1.2 million workers, called it "a necessary step toward regional competitiveness," noting that Argentina's 35% rate was the highest in South America, above Chile's 27%, Uruguay's 25%, and Colombia's 35%.

Tax partners at major consulting firms said a technology firm currently allocating 45% of profits to combined tax obligations could see that fall to the high 20s. For firms considering whether to formalize or stay in the informal economy, this changes the calculus. The informal sector is about to get a lot less attractive.

The reform did not address Argentina's most distortive tax: the provincial turnover tax (impuesto a los ingresos brutos), a cascading levy imposed by each of Argentina's 23 provinces on gross revenue. Milei's team had sought to include a phase-out of the tax with federal compensation to provinces, but provincial governors blocked the provision in the Senate.

Economist Marina Dal Poggetto said the ingresos brutos tax is a tariff on interprovincial commerce. Until that's addressed, Argentina remains a collection of 23 separate tax jurisdictions, not a single market.

Opposition lawmakers criticized the reform as fiscally irresponsible. Peronist Deputy Máximo Kirchner argued that the revenue loss would force deeper cuts to health and education spending. "They're giving tax breaks to corporations while retirees can't afford their medications," Kirchner said during floor debate.

The IMF, in a statement Friday, called the reform "a positive step toward improving Argentina's business environment" but cautioned that "revenue neutrality will require sustained efforts to broaden the tax base and reduce evasion." The Fund projected that the reform would reduce tax revenue by 0.8% of GDP in its first year, a gap that would need to be closed through spending discipline or compliance improvements.

For investors, the direction of travel matters even if the destination remains distant. A government explicitly committed to lower tax burdens, however constrained by politics, represents a departure from the Kirchnerist preference for revenue extraction. The question is whether Milei has enough time — and enough political capital — to make the changes stick before the next electoral cycle begins in earnest.