By Javier Jaque, Lead Partner at CCL Auditores Consultores.
Read the opinion column in Diario Financiero.
Theory and practice tell us that a fundamental pillar in the application of taxes is that they must be equitable, fair, efficient in their collection, and aligned with taxpayers’ ability to pay, among other principles.
At a time when a tax reform is being discussed and new ones are expected, it is necessary to question the apparent unfairness in the valuation of property taxes. What measures could be taken, even without repealing the tax, to mitigate its perceived lack of fairness? It is important to highlight that many studies have shown that the perception of fairness in tax systems is essential to reducing avoidance and evasion—an issue that remains central in public debate and among policymakers.
For example, property taxes are levied on the fiscal value of the asset, where the valuation is periodically updated and linked to the appreciation of the area. In this context, a basic principle of taxation is that revenue collection should focus on income generation rather than on wealth, in order to avoid discouraging investment in capital assets and preventing capital flight.
This is because, when acquiring real estate, various taxes have already been considered. For instance, the Global Complementary Tax—whether paid in installments or in full—can reach up to 40%, along with 19% VAT, and potentially other taxes such as debt-related taxes and inheritance and donation taxes, which are also wealth-based and are increasingly being phased out according to trends among OECD countries.
In order to achieve a proper valuation of taxes and support the fight against avoidance and evasion, it is worth questioning whether the real estate sector has already been sufficiently taxed at its different stages: construction and acquisition. Through a simple exercise, the tax burden could reach approximately 98% of the property’s value from the buyer’s perspective. For example, to purchase a property valued at 119 (including VAT), if the taxpayer is subject to a 40% personal tax rate, they would need to generate income of 198, pay 79 in taxes, and thus obtain the property for 119, which itself includes 19 in VAT. In this scenario, total taxes could amount to 98, equivalent to 98% of a property valued at 100 (net of VAT, excluding capital gains, which would also be taxed if realized).
In simple terms, property taxes do not take into account taxpayers’ ability to pay, meaning this tax can affect both retirees and professionals whose incomes have declined, potentially forcing them to sell the property or incur debt to meet their tax obligations. Therefore, the question arises: is it necessary to incorporate other revenue mechanisms into our tax system that do not affect wealth accumulated through years of effort, in order to improve the perception of taxation in Chile and ultimately achieve true tax fairness?