Chile Congress Backs Legislation Generating Billions in New Tax Revenue

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(Bloomberg) -- Chilean lawmakers gave their final approval to legislation that clamps down on tax evasion and boosts government revenues, handing President Gabriel Boric a win days before he unveils the 2025 budget.

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The lower house of Congress on Wednesday backed prior changes to the bill made by the Senate. The text toughens penalties for tax crimes, strengthens oversight of businesses, combats informality in the economy and limits cash payments, among other measures. When fully in effect, the legislation aims to increase total government tax income by 1.5% of gross domestic product, or roughly $4.5 billion.

“We will apply the new powers with all their rigor,” Finance Minister Mario Marcel told reporters. “Tax evasion and avoidance are sources of profound injustice in the economy and in society. They are obstacles to inclusive growth, and they are a source of fraud.”

The congressional approval comes just in the nick of time for Boric’s administration, which is putting the final touches on the 2025 budget proposal that must be presented this month. The measure will give the government an extra $1.2 billion next year, according to Marcel. The new income will finance social spending including plans to boost pensions and strengthen public security.

Still, some economists have expressed skepticism over the estimates of new revenue the legislation will generate, saying they are unrealistically high.

“Raising 1.5% of GDP in steady state seems particularly ambitious, given the set of measures that were approved,” said Andres Perez, chief Latin America economist at Banco Itau. “Strengthening investment and potential GDP growth would likely lead to a more durable and swifter recovery in revenues.”

In an interview this month, Marcel said there will be more wiggle room in next year’s budget, pointing to extra resources from the anti-tax evasion legislation and also a lithium deal between state-controlled company Codelco and SQM. The government is pressing ahead with plans to halve the fiscal deficit, he said.