This is how Chile fails with the increase in taxes on companies

This is how Chile fails with the increase in taxes on companies
This is how Chile fails with the increase in taxes on companies

Since 2000, Chile has increased corporate tax drastically, almost doubling its reference rate, which has grown from 15% to 27%. Throughout the same period, the applicable deductions have been reduced by 35%, also hitting companies in the southern country in this way.

Juan Alberto Pizarro, president of the Tax Commission of the College of Accountants of Chileexplains to Libre Mercado that “in addition to the strong increase in the reference rate, the most profound change occurred in 2014, when Michelle Bachelet’s government modified a rule that allowed the final tax bill to be lowered in exchange for the reinvestment of profits.”

In the following graph you can see how Chile went from having corporate taxation 50% lower than the OECD average to being above said average, with the aggravating factor that Chile’s trend is upward and that of the OECD, bass guitarist:

So, Although the average rate of Corporate Tax amounts to 23.6%, Chile applies 27%. It is also striking that business taxation is tougher in one of the OECD countries with the lowest level of income, since the resulting tax effort is much greater (in other words, charging 27% in Chile than 30% in Japan, since the Japanese country starts from higher levels of development and, in addition, has kept the rate stable in recent decades).

A serious mistake

A Commission of Economists convened by the Ministry of Finance in 2023 has studied the current fiscal situation of the country. As Pizarro explains, “the main finding of said working group is that, after increasing corporate taxes, growth has suffered, to the point that, in twelve years, We have lost activity for an amount equivalent to 8% of GDP. “Chile is now in 35th place in the Fiscal Competitiveness Index, which highlights the change for the worse in recent years.”

The expert points out that “going from 15% to 27%, and eliminating deductions and exemptions, the Corporate Tax has barely improved its collection from 15-16% to 16-17%. In addition, evasion rates have increased by nine points “During this period of tax increases, growth has fallen from a range of 5-6% to levels that barely exceed 0% in 2023.” To be exact, the increase will have been barely 0.2%.

“In aggregate terms, collection data is now at its lowest level in three years,” explains the expert. The 17,513 million dollars generated during the Operation Rent of 2023 contrast with the 15,818 million of 2024. For all these reasons, Pizarro advocates reversing the interventionism of recent years and following the recommendations of Manuel Agosín, who indicated in November 2022 that “The best way to raise… is to grow. If Chile grew at 4% per year in the next 10 years, as it did from 1998 to 2019 with a GDP improvement rate of 3.7% per year, tax collection would grow 54% faster than under any tax increase.” .

 
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