ANALYSIS OF TAX MEASURES: JOSÉ ANTONIO KAST’S GOVERNMENT PROGRAM

Following the election of José Antonio Kast as President of the Republic, the proposals contained in his government program are beginning to take shape as future public policies. In tax matters, the focus is on promoting economic growth, facilitating tax compliance — especially for small and medium-sized businesses — and gradually eliminating the Property Tax, commonly known as “contributions,” which in recent years has been questioned regarding its justification, legality, and tax fairness.

I. Reduction of the First Category Tax Rate

One of the central pillars of the proposal is the reduction of the First Category Tax (“IDPC”) or Corporate Income Tax, which currently has a 27% rate under the general regime.

The core proposal consists of reducing the general rate from 27% to 23%. Additionally, companies hiring workers with a high risk of informality may qualify for a further reduction, achieving an average effective rate of 20%. This preferential rate would be obtained through a tax credit associated with salary payments and social security contributions.

II. Reintegration of the Tax System

As part of Kast’s proposed tax reforms, a transition toward a fully integrated tax system between corporate taxes and shareholder taxes is contemplated.

Currently, under the Semi-Integrated System established in Article 14 A) of the Income Tax Law, the 27% tax paid by the company may be used as a credit by shareholders against their final taxes — Global Complementary Tax for Chilean residents or Additional Tax for non-residents. However, shareholders must restitute 35% of the corporate tax credit, meaning they ultimately can only use 65% of the tax paid by the company as a credit, resulting in a higher overall tax burden.

The reform seeks to allow shareholders to fully use 100% of the corporate tax paid as a credit, eliminating the restitution requirement and aligning the tax burden between companies and their owners.

Before the 2014 tax reform introduced by Law No. 20.780, Chile’s tax system was fully integrated and operated through the Taxable Profits Fund (FUT). Therefore, if this proposal were approved by Congress, it would not represent a new innovation from a tax perspective, but rather a return to the original structure upon which the Chilean tax system was conceived.

III. Capital Gains on the Sale of Securities

Regarding capital markets, and with the aim of strengthening them, the proposal includes eliminating taxes on capital gains arising from the sale of shares with low stock market presence, complementing the current regulatory framework established in Article 107 of the Income Tax Law.

IV. Pro-SME Regime

For the SME segment, the program proposes permanently maintaining the reduced First Category Tax rate at 12.5%, in line with the temporary provisions that reduced rates for the Pro-SME Regime during 2025.

In addition to the rate reduction, the proposal includes measures aimed at simplifying the Pro-SME Regime and reducing costs associated with formalizing new businesses, thereby encouraging the creation of formally established ventures from the outset.

Likewise, several amendments to the Value Added Tax (“VAT”) system are proposed to ease the liquidity issues SMEs frequently face. These measures include:

• Extending deadlines for filing monthly and annual tax returns;
• Allowing SMEs to postpone VAT payments once per year without penalties or interest;
• Permitting SMEs to recognize VAT as output tax upon actual invoice payment;
• Changing the withholding agent in contracts with the State, making the State — rather than the SME — responsible for tax withholding.

V. Property Tax Reform

Among the tax measures with a social focus, the proposal to gradually eliminate the Property Tax (“Contributions”) stands out. The gradual elimination would apply only to a taxpayer’s primary residence, with the ultimate objective of rendering such property entirely exempt from the tax.

Although the process would be gradual over a maximum period of four years, priority would be given to senior citizens. In this regard, the proposal projects that, beginning in the second half of 2026, seniors would no longer pay property taxes on their primary residence.

While this measure would reduce municipal revenues, the proposal contemplates compensation from the State to ensure municipalities are not financially affected.

The reform also includes significant adjustments to property valuation methods, establishing more transparent procedures based on objective criteria, as well as changes in the determination of tax rates, which would no longer be subject to discretionary variations or calculations determined by the Ministry of Finance.

VI. Spending Efficiency

A comprehensive fiscal proposal cannot focus exclusively on revenue collection; it must also address public spending and fiscal efficiency.

In this context, Kast’s government program contemplates reducing public spending by approximately USD 6 billion during the first 18 months of administration.

In parallel, the proposal includes measures aimed at improving the quality of public spending, including:

• Integrity programs for public officials;
• A comprehensive State audit;
• Measures against tax evasion and misuse of public funds;
• Redesigning the structure and organization of the central government to increase efficiency;
• Reorganizing social programs by prioritizing direct benefit transfers while avoiding disincentives to formal employment.

VII. Implementation of the Proposals

Several of these initiatives are part of the so-called “90-Day Challenge Plan,” whose objective is to promote priority reforms during the first three months of government.

To facilitate discussion and approval in Congress, the administration plans to submit concise legislative bills.

Among the first initiatives expected to be introduced are:

• Reducing the First Category Tax rate to 23%;
• Maintaining the 12.5% rate for SMEs;
• Gradually eliminating property taxes on primary residences.

IFRS 18 – The New Standard Changing Financial Statement Presentation

In April 2024, the International Accounting Standards Board (IASB) issued IFRS 18 — Presentation and Disclosure in Financial Statements.

This standard aims to provide users of financial statements with more transparent and comparable information regarding companies’ financial performance, thereby facilitating more informed decision-making.

IFRS 18 will replace IAS 1, although several existing IAS 1 principles remain with limited modifications.

IFRS 18 Introduces Three Main Sets of Requirements

• New Income Statement Structure

The standard introduces three defined categories of income and expenses — operating, investing, and financing — to improve the structure of the income statement and requires all entities to present newly defined subtotals, including operating profit.

• Greater Transparency in Performance Measures

IFRS 18 requires companies to disclose explanations regarding company-specific performance measures related to the income statement, referred to as management-defined performance measures.

• More Useful Grouping of Information

The standard establishes more detailed guidance on how to aggregate financial information and requires greater transparency regarding operating expenses.

Main Changes

1. Income Statement Structure

To improve consistency and comparability between companies, IFRS 18 requires income and expense items to be classified into one of five categories:

• Operating
• Investing
• Financing
• Income taxes
• Discontinued operations

Operating Category

Not specifically defined under the standard and treated as a residual category for income and expenses not classified elsewhere, corresponding to the entity’s principal activities.

Investing Category

Includes:

• Investments in associates, joint ventures, and unconsolidated subsidiaries;
• Returns generated from cash and cash equivalents;
• Returns from other assets generating largely independent returns.

Financing Category

Includes income and expenses arising from transactions related to obtaining financing for the entity’s main activities.

2. Presentation of Totals and Subtotals

Entities must present subtotals for:

• Operating profit;
• Profit before financing and income taxes;
• Profit for the period.

3. Disclosure of Operating Expenses

Entities presenting operating expenses by function must also disclose, in a single note:

• Depreciation;
• Amortization;
• Employee benefits;
• Impairment losses or reversals;
• Inventory write-downs or reversals.

4. Management-Defined Performance Measures

Entities must disclose management-defined performance measures used in public communications outside the financial statements to communicate management’s view of the entity’s financial performance.

These measures must be disclosed separately in the financial statements.

5. Aggregation and Disaggregation

IFRS 18 provides guidance regarding aggregation and disaggregation principles to help entities group items with shared characteristics.

To faithfully represent information, entities must provide all descriptions and explanations necessary for users to understand the financial statements.

6. Other Changes

IFRS 18 also introduces limited amendments to IAS 7 — Statement of Cash Flows, including:

• Operating profit must be the starting point for reconciling operating cash flows under the indirect method;
• The option regarding classification of interest and dividends paid or received is eliminated.

Although IFRS 18 will apply to periods beginning on or after January 1, 2027, comparative information will also be required.

For this reason, it is critically important for entities to begin preparing for adoption in advance, considering that they must evaluate:

• Changes in presentation and grouping of financial statements;
• Significant disclosures;
• Definitions of financial performance measures;
• Potential changes in information systems and internal processes.

These aspects require substantial time for implementation and impact assessment.