By Javier Jaque, Managing Partner, CCL Auditores Consultores
The debate surrounding the reduction of Chile’s Corporate Income Tax rate and the potential reintegration of the tax system is far from new. In fact, much of this discussion was already addressed by the Marfán Commission, whose findings warned that successive increases in corporate taxation had economic consequences that ultimately affected growth and, consequently, the tax revenues expected by the State.
One of the Commission’s most significant conclusions was that higher corporate tax rates generated less revenue than anticipated, largely because of their negative impact on investment and economic growth. According to its estimates, Chile may have forgone nearly 8% of GDP growth as a result of tax policies that increased the cost of investment and reduced incentives for business development.
It is therefore no coincidence that the most recent tax reform proposals promoted during the administration of former President Gabriel Boric included a 25% corporate tax rate, along with incentives allowing companies to reduce that rate by an additional percentage point when undertaking investment projects. This reflects a broad technical consensus regarding the need to strengthen Chile’s tax competitiveness.
The primary difference between those proposals and the current one lies in the reintegration of the tax system. However, it is important to understand who ultimately bears the burden of final taxes. For years, the prevailing narrative suggested that higher taxation would primarily affect large fortunes. Yet many of those taxpayers have already restructured their holdings through the various special regimes and substitute taxes implemented under the administrations of Bachelet, Piñera, and Boric.
In practice, a significant portion of the tax burden is absorbed by professionals, entrepreneurs, and middle- to upper-income taxpayers—including doctors, lawyers, engineers, and small business owners. When the overall tax burden approaches levels close to 50%, economic incentives inevitably begin to change.
International evidence consistently shows that excessive taxation on productive and professional sectors can negatively affect labor supply, productivity, and the willingness to undertake new investments and business ventures.
From this perspective, reducing the corporate tax rate and potentially reintegrating the tax system seek precisely to improve investment incentives and enhance the profitability of new projects.
An equally important factor is informality. When taxes are perceived as excessive, incentives increase for businesses and individuals to operate outside the formal economy, postpone investments, or seek avoidance and evasion mechanisms. Conversely, more competitive tax systems often broaden the tax base and strengthen voluntary compliance.
It is no coincidence that Chile’s Internal Revenue Service (SII) has announced studies aimed at measuring the country’s actual levels of tax evasion more accurately. If those levels prove to be higher than currently estimated, a more efficient tax structure could become an additional tool for promoting formalization and improving tax collection.
During much of the 1990s and early 2000s, when corporate tax rates remained below 20%, Chile experienced some of the strongest periods of economic growth in its recent history. Later, as the corporate tax burden increased to 27%, economic growth began to slow steadily.
For this reason, it is legitimate to ask whether it makes sense to continue pursuing a strategy whose results have been, at the very least, debatable over the past decade.