Chile Pursues Tax Reforms

April 1, 2014 Taxation in Chile

Chile Pursues Tax ReformsSANTIAGO – Chile may soon lower the tax obligations faced by individuals, while raising taxes for businesses and politicians, in order to help improve equality and fund social development.

On March 31st the President of Chile Michelle Bachelet revealed a comprehensive tax reform package aimed at significantly raising tax revenues in order to fund new investments “…that will lead to a better Chile for all.”

The proposed tax reform package is expected to raise national tax collections by approximately USD 8.2 billion per year, with a significant portion already earmarked for healthcare and education investments.

The proposed tax changes will also improve income distribution, eliminate the occurrence of tax evasion, provide greater incentives for investment into business, and will help further balance the government’s finances over the longer term.

The forecast rise in tax revenues is expected to come primarily from changes to the taxation of businesses, with a gradual increase to the rate of corporate income tax, rising from 20 percent to 25 percent over the next three years, and an elimination of the Taxable Profits Fund, which granted tax breaks to businesses on a portion of their profits.

In order to increase income equality among citizens, the maximum rate of personal income tax is to be cut by 5 percent from the current rate of 40 percent, while the income taxes faced by high-ranking officials will rise by 5 percent.

In an effort to prevent the occurrence of tax evasion and corruption, the president called for greater supervision of the national tax authorities and the National Customs Service.

Businesses and investors will also benefit from the proposed changes, with a more streamlined and efficient system of administration for small businesses, and more generous rules regarding the depreciation of assets.

The tax reform package is expected to presented to Congress on April 1st, and is expected to be easily approved, as the majority of seats are held by supporters of the President and the measures she has outlined.

Photo by: Mark Scott Johnson