MercoPress. South Atlantic News Agency

Chile's gov't aims to tax the wealthiest and the mining companies

Less than 3% of taxpayers will pay more taxes, and less than 97% will not pay more taxes, Minister Marcel explained

The administration of Chilean President Gabriel Boric Font Friday moved on with its initiative to introduce a revolutionary tax reform, which targets the wealthiest 3% of the population and the large copper mining companies.

Chile is the world's leading producer of copper with more than 50,000 tons of annual output.

With these changes, the progressive government seeks to collect 4.1% of the country's gross domestic product (GDP).

Finance Minister Mario Marcel outlined the proposed reform which is to be divided into four bills to be submitted to Congress.

The reform “responds to the idea of a fiscal pact that contributes to the development of the country, that helps modernize the tax system, that gives more justice to the system and that is efficient both in the collection and in the use of resources,” according to Marcel.

The economist insisted that “all studies show that in terms of the tax burden we are below the average of OECD countries in magnitudes that the OECD itself has estimated at around 8 points of the GDP.”

The new strategy comprises “a component of personal taxation, income taxation, the creation of a wealth tax, reduction of exemptions, avoidance and better control, a new mining royalty and corrective taxes,” Marcel explained.

He added that “mechanisms will be implemented to stimulate productive diversification, productive development, support for SMEs and the development of research and innovation. The royalty will also be directed in this direction, to the productive diversification of the country, and mining has a very distinctive territorial base, so part of the resources of the mining royalty reform will also go to the regions, as well as to the collection of corrective taxes.”

Two of the tax reform bills are to be submitted to Congress this month while the others are due to be finalized in the last quarter of 2022.

If these measures are approved, it is estimated that in 2023 the collection will reach 0.6% of the GDP to progressively increase to 1.8% in 2024, to 3.1% in 2025 until reaching 4.1%.

According to the official, the idea is to advance from “a semi-integrated system to a dual system.”

“For this, we are proposing to reduce the first category tax from 27% to 25%. It is a difference of 2% that will translate into a development rate for companies of 2% of their profits that they will be able to retain in full if they invest those resources in improving their productivity,” he elaborated.

“For distributed company profits, a capital income tax is created with a flat rate of 22%, which will be applied to dividends paid by companies to individuals, and this rate will also be applied to capital gains,” he also explained.

Marcel underlined that “slightly less than 3% of taxpayers will pay more taxes, and slightly less than 97% will not pay more taxes. This is a relevant fact about this reform.”

In the case of SMEs, Marcel pointed out that “the special regime is going to be maintained” because “we take very seriously the responsibility that proposing to the country a tax reform of this magnitude entails.”

“Of course, it is not something that we can minimize, and even when those who fundamentally contribute to this greater collection are a subset of the population, our commitment is to the country as a whole, to use these resources well, and to show Chileans that the effort being made to pay higher taxes will be an effort that is really worthwhile,” the Minister stressed.

After Marcel's presentation, Boric called on lawmakers to handle the case diligently so that the bill is dispatched within the established deadlines, because the goal was “to advance in greater equity, in greater equality, in greater social cohesion so that we are all a little more protected.”

“These are the social rights, which we seek to finance in a responsible manner with permanent income for permanent expenses,” the head of state pointed out. “This goes beyond a government in office,” Boric insisted.

With this plan, Boric reportedly seeks to bring the country closer to international standards, because Chile is a country with one of the lowest tax collection rates in proportion to its wealth in the entire Organization for Economic Cooperation and Development (OECD). Despite being one of the countries with the highest per capita income in Latin America, Chile is one of the most unequal states with the lowest redistributive capacity in the OECD, taking into account that taxes manage to reduce inequality by 2.5% compared to an average of 10% for the group.