Can Reforming Capital Allowances Boost Chile's Economic Growth?

Santiago cityscape with Andes mountains, related to Chile corporate tax reforms.

Chile's Economic Growth at a Crossroads: The Role of Taxation

As Chile prepares to welcome its new administration on March 11, 2026, economic discussions are heating up regarding corporate tax reforms. Presidential candidates José Antonio Kast and Evelyn Matthei have rallied around a proposal to cut the corporate tax rate from 27% to 23%. While such a move aims to stimulate economic growth, the underlying structure of Chile's tax system presents more pressing challenges that must be addressed to ensure sustainable progress.

Weak Capital Allowances: Stifling Investment Potential

One of the major impediments to economic expansion in Chile is its poor performance in capital allowances, ranking the worst among developed nations. Currently, Chilean companies are allowed to deduct only a fraction of their investment costs; for instance, machinery costs can be deducted at merely 70.6%, well below the OECD average of 85.7%. This inefficient capital cost recovery mechanism discourages businesses from making essential investments, crucial for boosting worker productivity and job creation.

Transition to a Territorial Tax System: A Competitive Edge for Chilean Businesses

Another fault line in Chile's tax framework is its adherence to a worldwide taxation model, a relic among developed nations. This outdated system places Chilean companies at a severe competitive disadvantage internationally, penalizing them with higher taxation on foreign earnings. By pivoting towards a territorial tax model, which many OECD nations have adopted, Chilean firms could optimize their global operations and enhance competitiveness in foreign markets.

The Path Forward: Reforms that Matter

To authentically stimulate growth and boost investment, Chilean policymakers have a unique opportunity to overhaul the existing tax framework. Reviving the full expensing policy, returning to the previous system that allowed companies to deduct the entire cost of specific investments in the year they were made, could enable businesses to recover capital swiftly. Coupled with transitioning to a territorial tax structure, these reforms would alleviate the strain on capital investment and empower Chilean firms to thrive.

As the new presidency unfolds, the focus on comprehensive tax reform could unlock Chile's economic potential, fostering an environment ripe for business innovation and growth.

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Can Reforming Capital Allowances Boost Chile's Economic Growth?

Chile's Economic Growth at a Crossroads: The Role of Taxation

Weak Capital Allowances: Stifling Investment Potential

Transition to a Territorial Tax System: A Competitive Edge for Chilean Businesses

The Path Forward: Reforms that Matter

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