The other measure, reducing the corporate tax rate from 27% to 23% over four years, would mean a loss of around US$1.8 billion once fully implemented.
Read the news article at La Tercera-Pulso.
One of the proposals incorporated by President José Antonio Kast’s government into its economic plan is the reintegration of the tax system. Since the 2014 reform under the government of Michelle Bachelet, Chile went from an integrated tax system to a semi-integrated one. In practice, this means that companies pay a First Category tax of 27%, but when withdrawing profits, the owners can only use a portion (65%) of that tax as a credit against their personal taxes, having to “repay” or pay the remainder.
The goal now is to reverse that change, so that the first-category tax paid by companies can once again be fully credited against the personal taxes of their owners.
Experts are divided on this modification, as some believe it would further complicate the system, since the entire structure would have to be readjusted, while others consider it the optimal approach.
But beyond these considerations, reintegrating the tax system has effects on tax revenue. According to estimates made by Alberto Cuevas, partner in the legal and tax area of KPMG in Chile, “the fiscal cost of integration could amount to approximately US$700 million.” Former Budget Director Matías Acevedo provides another estimate, stating that “based on the tax modernization bill from Sebastián Piñera’s second administration, the cost would be around US$800 million.”
Claudio Bustos, tax attorney and partner at Bustos Tax & Legal, supports the idea of reintegrating the system: “Tax specialists and those of us who work in tax matters, as well as taxpayers themselves, have observed that operating with a partially integrated system makes tax compliance much more complex and bureaucratic.”
Furthermore, the expert points out that “it contributes to incentivizing tax avoidance or evasion by taxpayers, since the partially integrated system raises the final personal tax rate for taxpayers receiving dividends from a company to a maximum of 44.45% as a consolidated tax rate, which is clearly excessive.”
Javier Jaque, Lead Partner at CCL Auditores Consultores, adds that “if the system is reintegrated, the final tax burden will be lower than it is now, and for someone investing money, whether from savings or any other source, taxed or untaxed, the final return will be greater. This will boost and motivate investments across all sectors.”
Likewise, Patricio Gana, Director of AK Contadores, states that “it can be seen as a good idea, because in Chile there was indeed a before and after when we disintegrated the system, when we turned it into a semi-integrated system. From that point onward, we never again reached the growth rates we had before.”
In turn, Álvaro Moraga, partner at Moraga Cía, asserts that “it is good, and in fact necessary. The general regime continues to operate with partial disintegration: the company pays 27% and the owner can only claim 65% of the credit. In practice, the burden remains with the entity where the investment and reinvestment take place. The Ministry of Finance acknowledged in 2024 that approximately 97.76% of capital gains taxation falls at the corporate level, which affects medium-term growth.”
Another perspective was offered by former Undersecretary of Finance and professor at the University of Chile, Alejandro Micco, who recommended against opening this discussion. “The system is already working that way, and making a change of that magnitude is a tax reform,” he argued.
Tax Cut
Regarding the reduction of the corporate tax rate from 27% to 23%, this would also result in a decrease in revenue. According to Cuevas’ estimates, for every percentage point reduction in the tax rate, it represents 0.13% of GDP less revenue, which in monetary terms would be around US$450 million per point. Thus, once fully implemented, this would mean approximately US$1.8 billion less in revenue.
“Without a doubt, it has a negative effect on revenue. But, on the other hand, it can have compensatory effects. First, greater immediate investment in machinery and increased hiring could generate higher revenues,” says Jaque.
Bustos, meanwhile, mentions that “it is certainly possible to lower the corporate tax rate without compensatory measures, but it is a somewhat riskier bet, because ultimately it rests simply on the hypothesis and the assumption that, by reducing the corporate tax rate, companies will produce more, because they will reactivate their investment projects, carry out larger business projects, and therefore, ultimately generate greater profits.”