OECD Calls On Chile To Pursue More Equitable Tax Policies

by Ulrika Lomas, Tax-News.com, Brussels

28 February 2018

The OECD has called on Chile to undertake more comprehensive tax reform to improve the fairness of the tax regime.

The OECD called on the country to build on the tax reform undertaken in 2014, and the tax administration improvements introduced in 2016. This year, authorities should look to make the individual income tax regime broader and more progressive, it said.

The OECD praised Chile for its reforms in recent years. The 2014 tax reform bill lifted the corporate income tax rate to 25 percent from 20 percent and prevented companies from indefinitely deferring liability to taxation by reinvesting profits. The top individual income tax rate was cut and excise taxes were increased. The 2014 tax reform also eliminated the VAT exemption on the customary sale of new or used property in 2017.

Then, in 2016 the Government approved a number of measures to improve conditions for businesses. This included the introduction of online pre-filled VAT forms in 2017.

The OECD's latest Economic Survey for Chile proposes that the country should raise property taxation to 1.7 percent of GDP (the OECD median), from 0.9 percent currently, and increase green taxes also to the OECD median of 2.2 percent of GDP, from 1.2 percent currently.

The OECD said: "More can be done to use taxes and transfers for addressing inequality. Raising property and environmental taxes, or lowering personal income tax bands, could help finance higher social spending, formal employment subsidies, and health insurance support."

In particular, the OECD noted that the personal income tax yields a low share of overall revenue mainly because the tax base is very narrow. Almost 76 percent of taxpayers are exempted and the top rate applies only at very high income levels. As a result, the current personal income tax has poor redistributive power in Chile, the OECD said. It recommended Chile make "significant changes in the personal income tax rate schedule, especially by lowering the bands at which the personal income tax and the higher income rate are levied…" This could lead to an increase in revenues of 1.3 percent of GDP, the OECD said.

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