Will Boric’s Tax Changes Strengthen Chile’s Economy?
Major tax reforms proposed by the government of leftist President Gabriel Boric will be debated in Chile’s Congress in the weeks ahead. Some industry groups have criticized aspects of the tax reform measures as unfair and likely to have unintended consequences, such as deterring investment and stifling economic activity. What are the main attributes and shortcomings of the proposed Chilean tax reforms? How likely are they to pass Congress in their current form, and what changes can be expected?
Geoffrey Dennis, independent emerging markets commentator: “President Boric’s sweeping tax proposals are not actually a ‘tax reform’ but rather a very large increase in tax revenues to be used to finance higher spending on the government’s social agenda: pensions, housing, education and health care. At under 20 percent of GDP, the tax/GDP ratio in Chile is low by OECD standards, and the goal of this ‘reform’ is to increase this by 4 percentage points by 2026. To raise this amount of money to fund higher spending represents a ‘fiscal reform’ rather than ‘tax reform;’ it is an ambitious leftist agenda. Some taxes will be raised (on income at the upper end and mining royalties with a limit on mortgage tax relief), and new taxes are proposed (capital gains tax at 22 percent from 2023, the end of the tax exemption of rental income and a wealth tax). The main offset is a small reduction in the corporate tax rate from 27 percent to 25 percent. It is little wonder these tax proposals have been criticized. They will be negative for…”Read More
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