By Javier Jaque, Managing Partner of CCL Auditores Consultores.
In recent times, the debate over the effectiveness of reducing taxes on large corporations has intensified. For some, it represents a direct benefit to the business sector that weakens tax revenue without generating real value. For others, however, it is a necessary tool to reactivate an economy that has shown growth rates below both its historical potential and the regional average.
A key reference in this discussion is the case of Ireland, widely recognized as an example of economic transformation. Through a foreign investment attraction policy — with a 12.5% corporate tax rate — the country managed to transition from underdevelopment to sustained economic growth. While a reduction of that magnitude is not being proposed in Chile, lowering the first-category corporate tax rate to 23% would still represent a meaningful signal. As Finance Minister Jorge Quiroz has pointed out, a tax cut must be significant enough to produce concrete effects, since marginal adjustments are unlikely to influence investment decisions.
In addition, it is worth remembering that former President Gabriel Boric included a reduction of the corporate tax rate to 24% in his last two tax reform proposals. Therefore, the strong reaction to the currently proposed reduction in the first-category tax rate appears surprising, considering that the former president himself had proposed lowering it to 24%. In this context, it is fair to ask whether this response is based on technical grounds or rather on ideological differences.
It is also important to recall the conclusions of the Marfán Commission, which brought together economists from across the political spectrum — including Manuel Marfán, José De Gregorio, Rodrigo Vergara, Ignacio Briones, and Andrea Repetto. This group identified the sustained increase in the tax burden as one of the factors explaining the weaker economic dynamism of recent years. In particular, it was estimated that the increase in the corporate tax rate from 20% to 27%, following the tax reforms implemented during the governments of Sebastián Piñera and Michelle Bachelet, may have contributed to lower GDP growth, estimated at close to 8%.
From this perspective, the analysis is also linked to the so-called Laffer Curve, which suggests that excessive increases in the tax burden can ultimately reduce tax revenue by discouraging investment and economic activity. Although it was argued at the time that Chile had not reached that critical point, the evidence gathered by the Marfán Commission suggests that the impact on growth was indeed significant.
Finally, it is important to incorporate an additional element into the analysis: while Chile is often favorably compared to the OECD average in terms of corporate taxation, this perspective changes when considering the combined effect of pension contributions and other costs arising from recent reforms. Several reports warn that, under this broader perspective, the country could rank above the OECD average, reinforcing the need to evaluate the competitiveness of the tax system as a whole.
Consequently, the proposal to reduce the corporate tax rate to 23% does not appear to be an isolated measure, but rather a continuation of previous assessments and proposals that have been considered across the political spectrum in recent years. After a prolonged period with a 27% tax rate and economic growth results below the Latin American average, it seems reasonable to explore alternative measures that could help stimulate the economy, investment, and stronger economic growth.