political forces agree tax reform compromise
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[July 09, 2014]
SANTIAGO (Reuters) - After
weeks of political wrangling, Chile's Finance Minister
unveiled changes to a tax reform bill late on Tuesday,
including a larger increase in the corporate tax rate in
exchange for concessions opposition lawmakers called
The reform, a centerpiece of President Michelle Bachelet's
administration, maintained an overall goal of increasing tax revenue
by $8.2 billion, equivalent to 3 percent of gross domestic product.
Corporate taxes will now gradually increase to 27 percent by 2017
from a current 20 percent, according to the agreement between the
minister and the Senate's five-member Finance Committee. In the bill
as initially presented to Congress, corporate taxes were to increase
to 25 percent.
"We've reached a historic agreement ... we've managed to move
forward on the most complex and profound tax reform in the last 30
years," said Finance Minister Alberto Arenas from Congress in the
port city of Valparaiso.
With the tax reform "growth will go hand in hand with inclusive
development, and companies and individuals will be taxed in a more
balanced way," said Arenas.
The funds raised through the uptick in the tax take will go towards
financing an education overhaul, improvements to Chile's health
system and helping the country balance its books.
Bachelet took office for a second non-consecutive term in March,
vowing to address Chile's rampant income inequality, the worst among
the Organization for Economic Co-operation and Development's 34
Last week, Arenas said that the government's target of reducing the
fiscal structural deficit to zero by 2018 was conditional on the
approval and implementation of the tax reform package.
Plans to scrap the so-called 'FUT', a mechanism by which companies
can gain tax exemptions on part of their profits, remained intact
after the agreement.
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Businesses and opposition lawmakers have said the move to eliminate
the FUT could stem investment in an economy that is already
stalling, and especially hurt companies that have scant access to
international credit markets.
The new changes to the tax bill also include incentives for
investment and saving.
"The system will allow medium and large companies to reinvest part
of their profits," said Senator Ricardo Lagos Weber, who heads the
Senate Finance Committee.
The government expects the tax reform to receive final approval from
Congress within the next couple of months.
(Reporting by Antonio de la Jara and Anthony Esposito; Writing by
Anthony Esposito; Editing by Christopher Cushing, John Stonestreet)
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