September 10, 2014 / 6:47 PM / 5 years ago

Factbox: Chile tax reform set to be approved

SANTIAGO (Reuters) - Chile’s Congress is expected to give its stamp of approval to President Michelle Bachelet’s tax reform bill on Wednesday, the first key part of the center-left leader’s tax-and-spend campaign pledge to reduce inequality.

The reform, which will increase the cost of doing business in Chile by raising corporate taxes and closing some tax exemptions, has been fiercely opposed by the right-wing opposition and business leaders, who say it will crimp investment at a time when economic growth is slowing.

But the government says the extra cash it will bring in - equivalent to about 3 percentage points of gross domestic product by 2018 - is needed to pay for an overhaul of Chile’s education system and other social reforms. The following are the key details of the tax reform bill:

CHANGES TO THE TAX STRUCTURE:

* The reform seeks to increase Chile’s tax haul, taking around 3 percentage points more of GDP in taxes after 2018.

* Changes to the tax structure will bring in the equivalentof 2.5 percentage points of GDP, while measures to reduce taxevasion will garner the remaining 0.5 percentage point.

* Corporate taxes will gradually increase from the current20 percent. Companies must either opt for 25 percent with personal taxes paid on an accrued basis or 27 percent, with taxes paid on a dividend basis. The choice has to be approved by shareholders.

* The Taxable Profits Fund (FUT), a mechanism by whichcompanies can gain tax exemptions on reinvested profits, will beeliminated in fiscal year 2018. From then on, companies willhave to pay taxes on their total profit.

* A statute called the DL600, which provides foreigninvestors with certain tax and other guarantees, will beabolished and replaced by a new instrument, yet to be designed.

* The maximum tax bracket for personal income tax will belowered to 35 percent from 40 percent starting in 2018.Political representatives will pay an extra 5 percent tax tokeep their current rate effectively intact.

* Tax evasion schemes will be tackled by authorities and those who participate will be sanctioned.

INVESTMENT INCENTIVES:

* Small companies will have an “instant depreciation” mechanism for assets that will allow them to immediately incorporate the decrease in value of assets that occurs over time.

* A simplified tax structure for smaller companies will beexpanded to include more businesses. The current sales limit of8,200 UF inflation-indexed units (about $350,000) will go up to25,000 UF ($1 million).

CORRECTIVE TAXES:

* “Green” taxes include a tax on carbon emissions for thermoelectric plants bigger then 50MW and a tax on the import of diesel vehicles with higher cylinder capacity, excluding work vehicles.

* Taxes go up on sweetened beverages, alcohol and tobacco.

* A stamp tax, which is mainly applied to loan and bondissues, will increase to 0.8 percent from 0.4 percent startingin 2016.

* A value-added tax (VAT) credit given to constructioncompanies for building homes will be restricted to housing worth2,000 UF (about $90,000) or less.

Compiled by Santiago bureau; editing by Andrew Hay

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