The bill passed the lower chamber of deputies on July 5 where it faced stronger than expected opposition.
It proposed to raise grain export tariffs from 35 to 47 per cent, on a sliding scale linked to global prices.
The vote came after rival protests for and against the bill on Tuesday, with hundreds of thousands demonstrating in the streets.
With the vote carried live on national television, hundreds of opponents of the bill gathered in the Palermo district to watch the proceedings.
They erupted in celebration when the bill went down to defeat.
Farm leaders welcomed the tax-increase cancellation.
"The conflict is over," said Luciano Miguens, head of the Argentine Rural Society,