Another of the novelties that the Public Finance Report (IFP) of the first quarter of this year brought was the publication of a report in charge of the International Monetary Fund (IMF) with recommendations on how to improve the projections of tax income of Chile.
This was one of the commitments achieved by the Government with Congress to dispatch the 2025 Budget Law at the end of last year, together with the preventive cut of public spending for more than US $ 600 million in January.
In general, the report concluded that in the last 25 years the projection of income in Chile has shown “great volatility”, but that it is not an exclusive phenomenon of the country, noting that others, such as France and South Korea, have also faced deviations in their income calculations after the Covid-19 pandemic.
For example, in the case of Chile between 2023 and 2024 the projected and effective collection differences amounted to 1.5% and 1.3% of the gross domestic product (GDP), respectively; In the case of France the gap was 0.7% and 1.4% of the product, respectively; while in South Korea the difference was 2.4% and 1.2% of the size of the economy.
“The report prepared by the monetary fund mission warns that it is possible that some structural changes in the economy during and after the pandemic are amplifying the deviations of the projection models,” said the Budget Department (Dipres) in the IFP.
It also observes that the estimate of future tax collection becomes “more uncertain” when the economy has high volatility and legal modifications are applied, as has happened in Chile in the last five years.
The report also confirms that taxation to corporate income has in Chile a high participation in total collection and, at the same time, greater volatility than in other nations.
The framework of action
In its report, the IMF made 13 recommendations distributed in three axes: institutionality, estimation methodologies and difference analysis (see table).
In less than three months from the visit of the Fund to the country until the publication of this IFP, the Dipres has implemented six of the 13 suggestions.
New actions will be incorporated into the next reports, said the agency headed by Javiera Martínez.
There are four measures that highlighted the dipres that are being promoted, such as the use of microdates for the ex post review of the tax system.
“These estimates are fundamental for the projection of income, since they are used for two purposes: on the one hand, to deduct the effects in the past of changes in tax policy, and thus have comparable series; on the other hand, to project its effect on fiscal income into the future. 2024 onwards, ”the Dipres explained in their report.
Another advice is the use of microdatos to calculate the collection associated with private GMP 10 mining (the ten largest private mining companies); new models of time series for non -mining tax revenues; and increase coordination with the Internal Tax Service (SII) to share assumptions, models and practices for income projection.
The recommendations delivered by the Fund
Institutionality
- Formalize in a brief internal document the income projection process, including at least when the process begins, what agencies supply information and on what time it should be shared, if not public.
- Improve and systematize the archiving process to guarantee the transmission of knowledge and facilitate the consistency and continuity of the methodology.
- Find alternatives to access sworn statements. For example, financing the purchase of an island in the SII or the projection by micro simulation in the SII.
- Ensure appropriate coordination between the equipment that performs income projections and impact estimates of tax reforms included in financial reports.
- Perform and publish periodic reviews (former and Ex Post) of projections and impact measurements in discretionary change collection.
- Hold periodic meetings with information supplier (such as SII) and studies (from the CFA to research centers) to analyze the process, their status and differences; and analyze the feasibility of creating in the medium term a working group to analyze the projections.
- Increase transparency by periodically publishing tables summary and documents with the assumptions (its changes), the model, ex before, the data used to project, the projections and the effective collection, and an explanation of the differences between them.
Estimation methodologies
- Use Coats the Buoyancy/Elasticity measures, seeking to reflect significant discretionary changes with dichotomous variables (in the absence of impact estimation).
- Use proxis variables that better represent the tax bases (for example, private consumption for VAT and non -mining GDP or the exploitation surplus for the first category).
- Use alternative models to time series to compare results and select the best model: start working with microdates in the short term and with micro simulation in the median.
Difference analysis
- Project the tax expressed in UTM for this indicator instead of using the CPI.
- Estimate the impact of discretionary changes (policy and administration) with caution and critically, considering the reaction of taxpayers and, especially, the elasticity of each type of tax.
- Project the collection of lithium -producing companies with micro simulation, but separately.
