Letter to the Editor in El Mercurio: Economic Growth vs. Fiscal Cost
By Javier Jaque, Managing Partner of CCL Auditores Consultores
Dear Editor,
Regarding the economists who have raised concerns about the proposed comprehensive reform package, an important issue arises in connection with the review of certain transitional measures included in the bill, such as capital repatriation, the reduction of the tax on donations, and the substitute tax applicable to excess withdrawals.
These measures could ultimately fall into a category of initiatives that may not generate additional economic growth, while nevertheless resulting in an increased fiscal cost.
In this regard, it is important to recall that it was the administration of President Bachelet that, through Law No. 20,899 in 2016, introduced a substitute tax regime that was considerably more aggressive than the one currently being proposed.
From this perspective, the measures under discussion are intended to mitigate the temporary decline in fiscal revenues that could result from the gradual reduction of the First Category Tax rate. At the same time, however, these initiatives are based on the expectation that stronger economic growth over the next three years will lead to increased tax revenues, both from Value Added Tax (VAT) and income taxes.