Tax and Politics

by | Aug 9, 2021

Comparing Presidential Tax Proposals

On July 18th, the winners of the presidential primary elections of Chile Vamos and Apruebo Dignidad were elected, Sebastián Sichel and Gabriel Boric, obtaining the first majorities respectively. On other hand, on August 21st the candidate for Unidad Constituyente (Yasna Provoste, Carlos Maldonado, or Paula Narváez), who will compete in the November 21st  presidential elections will be known.

This report seeks to systematize the proposals in tax matters of the current candidates of Chile Vamos, Apruebo Dignidad, and Unidad Constituyente, contained in their programs or published in various media during the last weeks to shed light on possible changes and reforms that the Chilean tax system will undergo.

These proposals are summarized below:

Subject

Sebastián Sichel

Yasna Provoste*

Carlos Maldonado

Paula Narváez

Gabriel Boric

Higher Collection

3 points of GDP in 5 years.
5 points of GDP.

10 points of GDP in a decade.

5 to 6 points of GDP in 5 years.
More than 8 points of GDP in 8 years.

Tax system

Increase in the progressivity of the tax system
(will prioritize to not increase taxes on companies in general and SMEs in particular).
Disintegration of the tax system.
Disintegration of the tax system in the medium term (maintaining an integrated regime for SMEs).

Disintegration of the tax system (maintaining an integrated regime for SMEs).

 

Modification of the income tax rates of the highest income brackets.

Elimination or modification of exemptions

Review of exemptions for elimination or modification, taking as reference the reports issued by the Tax Commission for Growth and Equity and the technical mission of the OECD and the IMF.
Elimination of VAT refund to construction companies.

Qualification of Private Investment Funds as First Category taxpayers.

Elimination or restriction of tax exemptions.

Capital gains (107 LIR) will be considered income.

Investment funds: (i) Private: Limitations to indefinite postponement of taxation (subject to IDPC); (ii) Public: establishment of reduced rates.

DFL 2: Limit benefit to 2 homes.

Eliminate special credit construction companies.

Limitation of use losses in the time of First Category taxpayers.

Intangible depreciation benefits review.

Phasing out of other exemptions.

Capital gains (as a general rule).

VAT on services and construction.

Imputed income regime.

Amendment to DLF 2: Increase taxable bases related to land taxes; exclusion of affordable housing with a higher tax value; limitation of the number of affordable homes per taxpayer to 2; modification of exemptions in terms of rent.

Wealth tax

Review of the taxation of the inheritance tax and luxury goods.
Measures that increase tax burdens on high net worth.

Higher tax on wealth and profits of people with higher incomes.

Tax on the super rich.

Creation of permanent patrimonial tax.

Global minimum tax application.

Tax on retained earnings.

Land tax review with emphasis on value and quantity.

Review of the Inheritance and Donations Tax law.

Review of property tax exemptions, especially in productive or extractive industries (forestry, mining, among others).

Creation of an extraordinary tax on wealth (net worth) of the highest personal assets.

It evaluates the adoption of a permanent and progressive tax on the wealth of the richest 0.1%, establishing progressive rates by brackets.

Mining Royalty

Royalty Review.
Support and realization of the current Mining Royalty project.
A minimum payment
level
will be established. A tax will be applied on sales and rates on operating profits obtained due to price increases.
Establishment of Royalty with a progressive rate for mining exploitation that will be applied based on the value of the extracted mineral.

Specific / Special Taxes and Green Taxes

Gradually bring the taxation of fuels and emissions closer to efficiency levels.

Tax consumption of harmful substances in food areas.

Modification of the tax on alcoholic beverages.

Corrective tax application.

Review of specific taxes on food, and green taxes.
Gradual increase in carbon tax from US $ 5 to US $ 30 (includes commercial vehicles).

Increase fuel taxes to 7 UTM per cubic meter for gasoline and diesel, without exemptions.

Modification of the tax structure, regulation and taxes on alcohols, tobacco, ultra-processed and

high sugar foods.

Increase in the tax rate for the acquisition of used vehicles, and expansion of affected vehicles.

Taxes on polluting products.

Progressive increase in flight rates.

Establishment of rates for non-use of natural common goods delivered to companies or individuals.

Regional Taxes

Regional and sectoral tax incentives.
A minimum payment floor will be established. A tax will be applied on sales and rates on operating profits obtained due to price increases.
Creation and design of regional environmental taxes.

Tax Avoidance and Crimes

Allow IRS to qualify an operation as elusive within administrative procedures.

Elimination of the administrative monopoly of tax criminal action.

Extension and tougher penalties for tax crimes.

Combat evasion and avoidance (measures are not specified).
Establishment of new tools to combat tax evasion (measures are not specified).

Improve IRS inspection capacity.

Review IRS oversight powers.

Better access to banking information.

Administrative application of the GAAR clause.

Replacement of obligations to inform investments in tax havens.

Creation of compensated whistleblower and anonymous whistleblower figures.

Promoting international coordination.

Creation of compensated whistleblower and anonymous whistleblower figures.

Monopoly elimination.

Establishment of criminal responsibility to legal persons in tax matters crimes.

SMEs AND VAT

Establishment of a mechanism to reimburse the credit for R&D expenses in the event of loss or return of excess.

Improvement of the current Pro Pyme regime.

VAT refund calculated on the basic food basket and average medical expenses.

Elimination of VAT on basic products through a VAT recovery mechanism for lower income quintiles.

Tax incentives for MSMEs that invest in innovation and development, training, logistics, among others.

VAT payment against invoices actually paid.

Extension of the period to decrease the penal interest rate for late payment of contributions and taxes.

Refund accumulated VAT tax credit (current requirements will be modified).

Program under construction.

i

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Some candidates (Sebastián Sichel), or their representatives, have expressed that their tax programs will be maintained, without suggesting modifications while others have indicated that they are in the process of feedback, review, and improvement (Gabriel Boric) or construction (Yasna Provoste).

Notwithstanding the lack of some programmatic and political definitions, some proposals are widely shared, and therefore, it is likely that they will be implemented in the next government. This is the case of the elimination or modification of the exemption regime. In other matters, such as the disintegration of the tax system, there is no such coincidence, so its implementation or not will depend on the result of the presidential elections.

With only 15 weeks to go before the presidential elections, those proposals in which there is a greater coincidence will likely be those that define the country’s tax future.

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