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UPDATE 2-Argentina tax bill to slash corporate income taxes to 25 pct

(Adds details of reform, economic and political background, quote from Dujovne)

BUENOS AIRES, Oct 31 (Reuters) - Argentina plans to cut corporate income taxes to 25 percent by 2021 from 35 percent as part of a tax reform bill to be sent to Congress in the coming days, Treasury Minister Nicolas Dujovne said on Tuesday.

The reform would also lower employer social security taxes, and Dujovne said the government was negotiating with provinces to reduce so-called gross income taxes, which economists say contribute to high consumer prices.

The proposal marked the first concrete step President Mauricio Macri's administration has taken toward deepening its business-friendly reform agenda since his "Let's Change" coalition swept to victory in midterm legislative elections last week.

The wide-ranging bill, which also includes some tax hikes, including a new capital gains tax, highlights the difficult balance the government faces in seeking to lower costs to attract investment, while also reducing a fiscal deficit seen at 4.2 percent of gross domestic product (GDP) this year.

"In the short term we have two competing goals: lowering the deficit and cutting taxes," Dujovne told a news conference. "In the long term, they probably do not compete because lower taxes would generate less evasion and more government income."

Dujovne said the reform would have an overall fiscal cost of 1.5 percent of GDP over five years, but that would be offset by greater economic growth and lower tax evasion to make the proposed reform revenue neutral.

CAPITAL GAINS TAX

The bill includes a new capital gains tax of 15 percent on profits from government bonds issued in foreign currency or indexed to inflation and 5 percent on local-currency, non-indexed bonds.

That could initially contribute around 0.2 percent of GDP in government revenue, Dujovne said.

While companies currently pay capital gains tax and individuals pay it on foreign-issued bonds, individuals are exempt from paying it on local assets.

Dujovne said that made Argentina an outlier in Latin America and among Organization for Economic Development and Cooperation (OECD) countries.

"There is no reason not to do it," Dujovne said. "Of the 35 countries in the OECD, 34 charge a capital gains tax."

Capital gains income from stocks would remain exempt. Dujovne said he did not expect the new tax to harm the country's capital markets.

Other taxes offsetting the fiscal impact include an increase in taxes on sugary drinks and alcoholic beverages, and a tax on sales of second homes.

Macri's coalition still lacks majorities in both houses of Congress, but some opposition Peronists have indicated a willingness to negotiate with the government on reform proposals. (Reporting by Eliana Raszewski; writing by Luc Cohen and Caroline Stauffer; editing by Susan Thomas and Rosalba O'Brien)