More than a year has passed since the report by the Internal Revenue Service (SII) aimed at quantifying the levels of tax evasion in the country was published. That 45-page document was prepared by former SII director Michel Jorratt together with the agency’s research team, constituting an official report of the institution.
The initial results sparked debate and significant criticism from experts. The compliance gap for the First Category tax was estimated at 4.7% of GDP, corresponding to an average evasion rate of 51.4% between 2018 and 2020—far above previous estimates.
It also found that VAT non-compliance stood at 18.4%, equivalent to an average gap of 1.8% of GDP. This figure did not generate major criticism.
Concerns over the high corporate tax evasion rate persisted throughout much of 2024. So much so that when Javier Etcheberry assumed leadership of the SII, he paused the report to review and improve its methodology.
Experts and lawmakers expected that this review would result in a significantly lower figure than the original. However, the revised version did not introduce major changes and instead focused on clarifying and increasing transparency around the methodology used.
During his presentation before the Finance Committee of the Chamber of Deputies this Wednesday, Etcheberry—alongside the Deputy Director of Auditing, Carolina Saravia, and Michel Jorratt—reported that the First Category tax compliance gap, after revision, averaged 46.4% between 2018 and 2020, in line with what Pulso had previously reported.
According to the report, the updated version incorporated an additional year—2021. Thus, for the period 2018–2021, the compliance gap for the First Category tax was estimated at 44.9% in 2018, 45.4% in 2019, and 48.9% in 2020. In 2021, due to the effects of the pandemic, it dropped to 28.7%.
As explained in Jorratt’s presentation, the estimate includes both the compliance gap in the formal economy and that arising from the informal economy.
The report also presented three maps of the First Category tax gap. The first shows the gap by type of non-compliance. Using 2018 as a reference year, 25.4% of the gap originates from underreporting of VAT-taxed sales to final consumers; 11.5% from underreporting of VAT-exempt sales to final consumers; 14.4% from false invoices; 14.7% from non-deductible expenses and sales without invoices; 1.7% from non-filers; 14.3% from inconsistencies between accounting records and administrative data; 3.6% from other types of non-compliance in the formal sector; and 14.3% from the informal economy.
The second breakdown is by economic activity. In the formal economy, the First Category tax gap is concentrated in financial auxiliaries (investment companies), with an average of 29% between 2018–2021; professional and technical activities (11.1%); construction (9.9%); transportation (9.4%); and real estate (6.2%).
For VAT, the non-compliance rate was 20.8% in 2018; 18.8% in 2019; 17.1% in 2020; it dropped to 13% in 2021 due to the pandemic; then rose again to 17.8% in 2022 and 18.2% in 2023.
According to the SII, two VAT compliance gap maps were constructed from these estimates. The first distributes the VAT gap by evasion method and whether taxpayers are formal or informal. Using 2018 as a reference year, 29.8% of the gap comes from unrecorded final sales; 17.0% from false invoices; 20.1% from manipulation of proportionality; 17.3% from non-creditable purchases and sales without invoices; and 15.8% from informal economic activities.
In the formal economy, the VAT gap is concentrated in retail trade, construction, professional and technical activities, and real estate. In the informal economy, the gap is significant in trade, construction, and agriculture.
The contribution of the informal economy to tax non-compliance is relatively small, representing around 0.4% of GDP. Its impact is more relevant in VAT, accounting for roughly 20% of that gap. In income tax, its impact is minimal, as it is a progressive tax and informal activities are concentrated among lower-income groups, meaning the potential First Category tax gap would largely be recovered as a credit against personal income tax.
Among lawmakers—especially from the opposition—doubts remained. Due to the number of questions raised during the session, it was agreed that further inquiries would be sent to the SII director, to be addressed in a future session.
Experts’ concerns
Tax experts have also maintained their reservations. Javier Jaque, Managing Partner of CCL Auditores Consultores, stated that “we may find that there are errors in the report, as it is difficult to understand how there could be evasion levels of 50% or even 46%. This reflects a system of oversight that has been, for many years, relatively inefficient.”
Soledad Recabarren, partner at Recabarren & Asociados, added that “the SII’s presentation before the Finance Committee of the Chamber of Deputies was interesting on one hand, and discouraging on the other, since the previous report indicated more than 50% non-compliance for the First Category tax, while the latest figure for 2021 is only 28.7%. Regarding individuals, lawmakers clarified that the compliance gap includes ISFUT withdrawals, which was a benefit proposed by the Ministry of Finance and approved by Congress.”
Meanwhile, Loreto Pelegri, Tax & Legal partner at PwC Chile, emphasized that “the previous report from the Studies Subdirectorate, covering 2003–2009, estimated evasion at 31% in 2009, whereas the current SII report indicates a 55.3% First Category gap—representing a 40% increase. Which report is correct? What underlying data changed if the methodology remained the same?”
She also pointed out that “it is very concerning that Jorratt suggests lower compliance in personal income tax for certain years is explained by the ISFUT benefit. That cannot be considered evasion or a compliance gap, as this mechanism allowed business owners to pay zero personal income tax on withdrawals or profit distributions, in exchange for the company paying a substitute tax at a lower rate. That was precisely its purpose: to accelerate tax payments at a reduced rate.”