Making Chile ‘Great Again’ Means Facing Political Reality on Tax

The slogan “Make Chile Great Again” became part the country’s 2025 congressional and presidential election, touted by one of the president-elect’s main advisers. Tax-wise, it might mean that the new Chilean government, to be led by the conservative José Antonio Kast, will push for pro-business policies.

Such policies could include lowering the corporate tax burden, enhancing tax benefits, and reducing the burden of tax compliance imposed by the Chilean tax administration.

Kast’s campaign promise was to make the burden of employment income and capital income the same, by going back to the integrated tax system Chile had until 2014, when it was overhauled by the socialist government of President Michelle Bachelet.

The wide interpretation of Bachelet’s reform is that it both stalled the Chilean economy by introducing massive tax complexity, while at the same time creating discrimination by favoring foreign investors over local investors, failing to generate substantial tax revenue.

But while the return of an economically liberal president brings hope to those who wish for a growing and free market, the chances of his tax policies becoming a reality aren’t great without a compromise with new, unconventional and yet influential political players.

Elusive Majority

While Kast has managed to bring back an unapologetically right-wing rhetoric that responded to those opposing the continuity of the current president Gabriel Boric, he hasn’t managed to secure a majority of the seats in the Chilean Congress, which means his tax agenda will need to find support from other political forces distant from his own ideology.

Out of 155 seats, the government controls 76, the left-wing controls 61, and unaffiliated parties control the balance of 18. Of those, the government might try to seek compromise from the 14 members of the so-called People’s Party led by Franco Parisi, a Chilean economist living in the US and promoting what could be described as a middle-class focused populist approach.

The group led by Parisi discussed lowering the corporate income tax burden of 27% to roughly 20% to 23%, refunding value-added tax on medication, lowering VAT on groceries, and stabilizing the Chilean property tax system by following a California-style model.

What this political group didn’t comment on, though, was ensuring that the tax burden associated with being an entrepreneur or an employee was the same, or that local and foreign investors be treated equally—ideas that sit at the core of the president-elect’s proposals.

Improving Tax Administration

In trying to find a compromise, the president-elect might secure a win in terms of corporate income taxation via a reduced rate, in exchange for granting personal income tax credits as proposed by Parisi. But leaving those small wins aside, the president-elect could choose to aim to give better direction as to how the existing tax system is run by:

Regulating the way tax technology is being used by the tax administration. If the system designed by the Chilean tax administration decides that a taxpayer’s behavior is unusual, the authority can automatically disallow the taxpayer from issuing tax documents such as invoices, and thus from engaging in business as usual.

The underlying problem is that the technology assumes all taxpayers behave in the same way, regardless of whether it relates to an individual, a small merchant selling goods in a farmers’ market, or a listed foreign public company with billions of dollars in revenue.

By not categorizing taxpayers correctly, the technology implemented by the Chilean tax administration is making mistakes, and is affecting the constitutional right of taxpayers to engage in business activities freely.

Substantially reining in aggressive transfer pricing audits, which have become known as a way for the tax administration to engage in a bargaining process with multinationals, even in the absence of transactions with any tax impact.

Empowering the leadership of the Chilean tax administration, often perceived as reasonable but as lacking the proper authority over the audit units that should, in theory, report to them.

Some argue this is due to Chile’s strict public employment regulation and the lobbying power of groups within the Chilean public apparatus, which inhibits senior members of the tax administration in choosing their teams or evaluating their performance based on reasonable key performance indicators.

When those senior leaders haven’t complied with the unions within the Chilean tax administration, the result has been either that they have been publicly attacked for their criteria on tax matters or that leaks from within have affected their personal lives.

Going Forward

The president-elect has a choice to boost the economy by substantially changing the tax system developed under the government of Bachelet, or to work within the system so that the Chilean investment environment can be perceived as stable and business-friendly, even if not necessarily cheap. Given his lack of a congressional majority, Kast might be forced to do the latter.

While Chile is still debating whether to revert to the successful tax system it had from 1984 until 2014, or to live with the one inherited from Bachelet in 2014 to the present, a comprehensive Chilean tax policy should aim at getting back on track.

This should mean global discussions such as the taxation of the digital economy (which Chile has mostly ignored), wealth taxation either in the form of supporting it or discarding it once and for all, and green taxes applicable to specific industries along with the possibility of transforming them.

All governments have a limited amount of bandwidth and political capital, and to make Chile “great again,” as proposed by supporters of the current administration, one should expect such capacity to be used in a forward-looking discussion aligned with global trends, as opposed to one stuck on past issues on which it’s unable to reach a consensus.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Ignacio Gepp is a partner with Puente Sur in Chile.

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