By Javier Jaque, Managing Partner, CCL Auditores Consultores.
Regarding the warning issued by Chile’s Autonomous Fiscal Council (CFA) that the omnibus tax bill continues to pose risks to public finances and may require additional compensatory measures to offset the impact of the proposed reduction in corporate taxation, it is important to assess the initiative as a whole rather than solely from the perspective of short-term revenue collection.
The core element of the reform is the reduction of the First Category Corporate Income Tax rate from 27% to 24%, a measure that had already been considered during the administration of former President Gabriel Boric as a tool to promote investment and enhance the country’s competitiveness.
Among the compensatory mechanisms included in the bill, one of the most significant is the amendment of inheritance and gift tax regulations. Unlike substitute tax regimes implemented in the past, this measure could generate substantial revenue, as it addresses an area that historically has not been subject to a specific regularization policy and presents considerable potential from an estate planning and wealth transfer perspective.
Likewise, the proposed tax reductions, although gradual, could have a positive impact on private investment. This effect would be reinforced by other initiatives promoted by the government, such as regulatory simplification measures, the reduction of administrative permitting burdens, incentives for new investment projects, and capital repatriation mechanisms. These include both the effective transfer of funds into Chile under a preferential 7% tax rate and the recognition of liabilities associated with assets held abroad.
Taken together, these measures are expected to foster greater business development, which in turn would increase tax revenues through Value Added Tax (VAT) and employment-related taxes, including the Second Category Single Tax.
Particularly relevant is the real estate sector, where the proposed incentives could help absorb existing inventory and stimulate new projects. This would not only have positive effects on employment and consumption but would also increase revenues derived from VAT, the Second Category Single Tax, and Stamp Tax associated with financing new developments.
In addition, there is the expectation of a gradual reduction in economic informality, a phenomenon that has reached concerning levels in recent years. Bringing currently informal activities into the formal economy could broaden the tax base and generate higher permanent fiscal revenues.
For this reason, it is debatable to conclude that the compensatory measures contained in the bill are insufficient before their economic effects can be properly assessed. Requiring additional compensatory measures at this stage could ultimately undermine the reform’s primary objective: generating higher levels of investment, economic growth, and employment.
International experience also provides relevant examples. Ireland is frequently cited as a case demonstrating how a tax policy focused on encouraging investment can contribute to long-term economic development. Through a significant reduction in corporate taxation, the country succeeded in attracting foreign investment, increasing productivity, and substantially expanding economic activity—an example that could potentially be replicated in Chile.