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Friday, August 24 de 2018

Tax Modernization Bill will allow the Treasury to collect an additional US$428 million once it is in full operation

"The bill allows us to increase tax collection", highlighted the Minister of Finance.

The Minister of Finance, Felipe Larraín, and the head of the Ministry of the Secretary-General,  Gonzalo Blumel, submitted the Tax Modernization bill that seeks to encourage growth, entrepreneurship, investment, savings, and employment, in addition to simplify processes for taxpayers, especially SMEs and entrepreneurs.

The text contains almost 300 pages and emphasizes the Government's objective of having a forward-looking view to the tax system in order for Chile to achieve an integral, sustainable and inclusive development, with clear and accurate rules.

The initiative protects fiscal balances. In fact, with the new tax scheme regime, the total integration of the system will amount to an annual reduction of fiscal revenue of US $ 833 million. To this figure, costs are added because of the introduction of international taxation standards, which imply a loss of US $ 7 million, and pro-investment benefits amounting to US $ 204 million. The latter are: instantaneous depreciation of 50% of the assets for the first two years, instant depreciation in La Araucanía Region for two years and a reduction in the VAT recovery period for the purchase of fixed assets.

In fiscal terms, annual revenue losses are estimated at US $ 1,044 million. However, revenue losses are expected to be offset by:

• Mandatory electronic receipt, which will collect US $ 1,181 million due to the reduction of evasion.

• New tax on the digital economy and greater control of cross-border trade, which will contribute US $ 251 million.

• Modification of the Green Tax, which will collect resources for US $ 40 million.

The sum of these last three measures amounts to US $ 1,472 million per year, according to the bill’s financial report.

Therefore, the Tax Modernization bill will allow the Treasury to collect an additional US $ 428 million in net terms, in 2023 currency, equivalent to 0.1% of GDP, once the new system is fully operating. "The bill allows us to increase tax collection", highlighted the Minister of Finance, Felipe Larraín.

After the initiative was submitted to the Lower House of Congress, the Minister Felipe Larraín made a statement to clarify doubts and delve into the impact of the measures considered by the bill.

The project has a clear focus on the middle class and one of the measures in this direction is that it raises from UF 2,000 to UF 4,000 the upper limit of the price of houses in which construction companies can use the special VAT credit. Thus, for homes up to UF 2,000 there is a 65% VAT credit and for homes between UF 2,000 and UF 4,000 there is a 45% VAT credit. Both cases maintain the current limit of UF 225.

On this measure, the Minister of Finance said that in a competitive market this should have a positive impact for the middle class. "The benefits should reach people. The last time, when that benefit was eliminated, prices went up for middle class families in Chile. That happened after the 2014 Tax Reform. We hope that this will be reversed now," the authority explained.

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