Chile – President presents tax reform bill to Congress

Chilean President Michelle Bachelet has submitted her “signature” tax reform bill to Congress, in a bid to improve tax equality, reduce tax evasion and help fund social spending.

The reforms also aim to lift tax revenue by USD 8.2 billion to get rid of the fiscal deficit by 2018.

The President is proposing to cut the top tax rate for individuals from 40 percent to 35 percent, while raising the corporate tax rate from 20 to 25 percent by 2017.

Other proposals include eliminating the Taxable Profits Fund (FUT); a mechanism that enables business owners to register their personal income from business profits as an asset of their corporation. It would be replaced with a system of accelerated depreciation, allowing companies to pay less tax during the first years of an investment project.

In addition, the calculation of corporate income tax would be based on an accrual rather than the current cash basis.

Rodrigo Fuenzalida, commercial and labor law expert at the Santiago Chamber of Commerce (CCS), told The Santiago Times that the elimination of the FUT would make for a fairer playing field for businesses.

“This law is clearly designed to help small and medium-sized businesses, because of the accelerated depreciation, and also because it will prevent larger companies from using the FUT to protect their profits,” he said, adding that although the FUT was designed to encourage businesses to reinvest profits, some lawyers and accountants were using this system to help companies elude taxes through fake companies.

Michelle Bachelet made tax reform promises a major part of her presidential re-election campaign, after serving as Chile’s first female President between 2006 and 2010. She said earlier this year that these reforms would be the most significant in 30 years.