The Chamber of Deputies began to vote on a bill that proposes a reform of the pension system in Uruguay.
The new law will include a gradual decrease in the rate corresponding to the first income band for which the Social Security Assistance Tax (IASS) is paid, which goes from $50,940 to $84,900 per month. Currently, this tax is applied progressively, according to the annual income brackets.
The proposal will impact 100% of the approximately 180 thousand liabilities that pay this tax. The tax cut will benefit the lowest-income liabilities to a greater extent. The mechanism is expected to come into effect on January 1 of next year and the tax waiver associated with the implementation of this measure is estimated at around US$70 million. It will be US$23 million in 2024 and another US$47 million the following year.
The president of Uruguay, Luis Lacalle Pou, and the Colorado Party negotiated the reduction of this tax that will be applied to retirements, pensions and similar benefits. The statement of reasons for the agreement between the Colorados and the president indicates that the IASS generated a “deep rejection” in the passive classes and opened an intense debate in society.
In addition, it is highlighted that retirement and pensions are not an income or an income from capital or work, but rather a social benefit derived from the protection system enshrined in the Constitution. However, it is understood that “this is not the time” to promote its total elimination, given the current circumstances.
Some specialists have shown skepticism regarding this agreement. The accountant Gustavo Viñales, from the Center for Economic Research (Cinve), warned that a pension reform is being voted on that is implemented to give the system “financial sustainability”, but that, in addition, decreases a direct and genuine tax such as the IASS.
According to Viñales, sustainability will only occur through lower benefits. For his part, the economist Braulio Zelko pointed out that the fact that in order to “unlock” the negotiation of the project in the coalition, the ruling party resorts to reducing the IASS shows “how little” intergenerational equity and sustainability that it is intended to preserve matter .
What is the IASS and how was it applied until today?
The Social Security Assistance Tax, commonly known as IASS, is a tax that is applied in Uruguay to people who receive income that exceeds a certain threshold established by law. This tax is intended to finance the country’s social security systems, including the payment of retirement and pensions to Uruguayan workers.
The IASS is applied to income of any nature received by people, including salaries, professional fees, capital income, among others. The tax is calculated based on a progressive scale that takes into account the amount of the taxpayer’s annual income, and can reach up to 15% of the same.
It should be noted that, in some cases, people may be exempt from paying this tax. For example, workers who are already retired or pensioners, those who receive income that does not exceed certain amounts established by law, and people who live abroad but who receive income from a Uruguayan source.
