Chile's incoming government is looking to implement a reduction in the corporate tax (CT) rate, lowering it from 27% to 23%, alongside a return to a 100% fully integrated tax system.
While the move aims to project a pro-business image, it is facing criticism over its impact on public coffers. According to data from the Committee of Experts on Fiscal Space, the reduction would represent a $2 billion loss in revenue.
The technical report warns that the economic benefits of this cut could take up to a decade to materialize. During that period, the fiscal cost will be the only immediate and tangible impact on the State.
Even in the long term, the net gain could be zero. The same report notes that a one-percentage-point reduction would raise GDP by 0.65%, implying that a four-point cut would increase GDP by 2.6%.
Since tax revenues tend to grow in line with GDP, any increase in collection from heightened economic activity would exactly offset the loss from the lower rate, leaving the balance at zero.
Competitiveness and Equity in Question
The effectiveness of the measure in boosting investment is questionable. Chile does not face a competitive disadvantage compared to its neighbors, as countries such as Peru, Argentina, and Brazil maintain higher corporate tax rates.
The mining sector, the engine of Chilean exports, is subject to its own specific tax regime. Meanwhile, a lower rate for the manufacturing industry would have only a marginal impact on GDP growth.
The proposal also includes full tax integration, allowing shareholders to credit the tax paid by the company against the dividends they receive. This measure has raised concerns regarding the horizontal equity of the system.
Experts suggest that more targeted alternatives exist to encourage investment. They propose incentives such as accelerated depreciation or direct subsidies tied to projects that improve productivity, thereby avoiding the defunding of the State.