Santiago, Chile (EFE).- The Chilean Senate approved the final outstanding article of the controversial tax and economic mega-reform pushed by José Antonio Kast’s government on Tuesday.
However, the legislation still faces hurdles, including executive vetoes and constitutional challenges currently pending before the Constitutional Court (TC).
With 27 votes in favor, 22 against, and one abstention, the Senate approved a formula to compensate municipalities for the reduction in property taxes on primary residences for individuals over 65. This mechanism has sparked division among local governments.
The provision requires the National Treasury to transfer compensation funds to each municipality to cover the approximately 190 million dollars that local coffers will lose due to the property tax reduction.
The government’s proposal earmarks 110 million dollars for the Municipal Common Fund (FCM) and direct reimbursements of 80 million dollars to individual communes. However, opposition and independent mayors argued during the debate that all funds should go to the FCM, advocating for a distribution strategy targeted to each commune’s specific needs.
The government’s planned vetoes aim to correct or eliminate three amendments added by the opposition during the legislative process: the «right to financial oblivion» regarding debts, the prohibition of compound interest (anatocism), and adjustments to guarantee 30-day payment terms for small and medium-sized enterprises (SMEs).
A veto is an executive power that compels Congress to revisit the President’s observations or amendments. Once both chambers have voted on these, the bill can be fully enacted.
This move will likely extend the debate by at least a week, while the Constitutional Court evaluates the admissibility of opposition challenges. These challenges contest various aspects of the initiative, such as tax stability clauses, on the grounds that they allegedly violate the country’s Constitution.
The core of the bill is a corporate tax reduction from 27% to 23%. It also includes VAT exemptions on home purchases, tax benefits for capital repatriation, and a controversial measure guaranteeing tax stability, effectively freezing tax rates, for large investments.
The Fiscal Council (CFA), established in 2019 to oversee public finance sustainability, stated that the project would generate a «net negative fiscal impact.» Meanwhile, the International Monetary Fund (IMF) warned that the plan is ambitious and will require significant effort to «meet deficit and debt targets.»
The Executive branch considers the bill’s approval crucial for reviving the economy, aiming to raise Chile’s growth from 2.5% last year to 4% by the end of the term, while reducing unemployment to 6.5% and balancing fiscal accounts.
The government hopes to have the reform passed by September to present its first budget by the end of the year. EFE
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