19/05/21

SOUTH AMERICA: Chile’s Lower House rejects wealth tax, higher corporate levies.

As published on batimes.com.ar, Wednesday 19 May, 2021.

Chile’s lower house of Congress rejected proposals for a wealth tax and higher corporate levies, marking a major setback for legislation that’s been criticised by investors and President Sebastián Piñera’s administration.

The wealth tax was backed by 79 lawmakers, short of the 92 needed, in an article-by-article vote on Tuesday. Legislation that would have raised the corporate tax rate to 30 percent from 27 percent also failed to pass. There’s still a chance that senators may try to reintroduce the measures in coming weeks.

The tax bill is one of several proposals debated by Chile’s Congress that have raised red flags among investors in recent weeks. Last month, lawmakers approved a third round of early pension withdrawals, and they are currently advancing a plan for a mining royalty. The proposals reflect increasing pressure for ways to counter the social and economic impact of the pandemic.

The wealth tax is also part of a wave of such proposals across Latin America, as lockdowns stall economies and governments struggle to head off rising poverty rates. Argentina and Bolivia have already passed similar measures.

In Chile, the bill’s detractors have said it’s not an efficient way to boost government revenues, may deter private investments and is also unconstitutional.

Income inequality and funding for social services such as education and health care will be priorities as the country writes its new constitution over the next year. Over the weekend, elections placed the writing of the new charter largely in the hands of independents and left-wing parties.

On Tuesday, the lower house approved a reduction of the value-added tax from 19 percent to four percent for essential products such as milk, bread and vegetables, and a cut to 10 percent for fuels, health products and hotels. The proposal calls for the new tax levels to be in place through the end of next year.