Chile Announces USD1 Billion Tax Cut Package

by Mike Godfrey, Tax-News.com, Washington

27 August 2008

The Chilean government has announced a USD1 billion package of tax relief measures designed to mitigate the country's exposure to expensive foreign fuel imports, reduce costs for the financial sector and small businesses and dampen the effects of inflation.

Included among the measures, announced by the government last Friday, are a temporary cut in fuel tax and the elimination of a tax on financial transactions.

Chilean Treasury Minister Andres Velasco disclosed that under the fiscal package, the specific tax on fuel will be reduced from USD310 per cubic meter to USD240 on 1st September. This tax cut will remain effective until April 2010. Other measures designed to reduce Chile's dependency on imported fuel and energy are tax credits to encourage households to use renewable energy, such as solar panels, and to help foster the development of renewable energy sources in general.

The tax on electronic financial transactions will be elimated in January 2009 and will help boost the country's financial services industry while cutting tax costs for small firms, Velasco added.

There will also be further support for SMEs in Chile in the form of tax breaks, which will be extended so that more companies qualify for favourable tax treatment, the Treasury Minister stated.

Chile is highly dependent on foreign gas, particularly from Argentina, and combined with rising oil and food prices globally, inflation is currently running at about 9.5%.

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