Minister presents proposal to opposition deputies to unblock tax modernization bill
22 marzo 2019

On March 19, Finance Minister Felipe Larraín attended a Finance Committee session to present a proposal sent from the Executive branch to the opposition to reactivate debate on the tax modernization bill (Exp. 12043). The minister assured committee members that the proposed changes contained in the proposal would offset any negative impact on tax collection resulting from tax system reintegration. At the same time it will maintain the existing progressive tax structure. The opposition, however, failed to change its position with the vote on the bill being postponed to April.

 

During his presentation, Larraín explained the changes that the Executive would make to the bill once it is passed. Despite the reintegration of the tax system proposed in the bill, the objective is to meet the opposition’s demand for tax collection to be unaffected and to keep in place the current progressive tax structure. Among the changes to be made by the Executive, the one proposed for the Digital Services Tax (ISD) stands out. The minister explained that following a recommendation from the Organization for Economic Cooperation and Development (OECD) this would be put on par with the Value Added Tax (VAT), bringing it to 19 percent. This will be complemented by increases in the tax on carbon dioxide emissions and a reduction in VAT exemptions for the construction sector.

 

According to the minister, these changes will generate a positive effect on revenue while maintaining the progressivity of the tax system. He supported this with statistics, explaining that the deficit of 274 million dollars caused by the reintegration of the tax system will be compensated by the proposed modification to taxes, leading to an increase in tax collection of 373 million dollars.

 

The proposals generated controversy among deputies. Opposition member Giorgio Jackson (Democratic Revolution) said the proposed changes “do not ensure the progressivity of the system”.  Jackson explained that, for example, the ISD impacts directly on the middle classes more than on the upper classes, which “refutes” the position of the ruling party on the matter. On the other hand, some deputies questioned the modernization of the Internal Revenue Service (SII), proposed by the minister, and called for it to be complemented with measures to ensure proper education of taxpayers in the face of these changes.  

 

Due to these misgivings, and despite the ruling party’s objections to them, the committee officially decided to postpone voting on the bill until the next session. This will take place in the first week of April, since next week will be the monthly recess. This will give time to the opposition to technically evaluate the proposals and if necessary request specific changes again before moving ahead with the vote.

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