Chile’s government is introducing new regulations that will prevent the wealthy from writing off groceries as a corporate expense, reported Bloomberg on Monday.
The month-old administration of President Michelle Bachelet will reportedly grant tax inspectors power to review every credit card purchase on a business account; while supermarket spending claimed as a tax deduction will be rejected out of hand, though people can appeal.
The clampdown comes as Chile seeks to raise revenue to pay for social programs. According to Bloomberg, tax avoidance at supermarkets is commonplace – cashiers at supermarkets in Santiago’s wealthier areas regularly ask customers if they want a “boleta,” a normal receipt, or “factura,” which allows a discount on Chile’s 19 percent value added tax.
Some experts however say that the crackdown is too draconian for a country, which already has the lowest tax evasion in Latin America. Additionally, the cost incurred to hire more tax inspectors to check on credit card purchases may outweigh the revenue acquired. Finally, some wonder if the powers given to tax inspectors are too all-encompassing.
“This is just what the tax regulator was asking Santa Claus for Christmas: all kind of dictatorial attributions and superpowers,” economist Bernardo Fontaine said in an April 8 presentation to a commission of Chile’s lower house.
“Before, an individual or corporation in Chile had the right to choose a less-taxing path; and with the reform, the regulator may force you to take path that leads to higher taxes,” added Christian Blanche, a partner at Santiago-based Tax Advisors, to Bloomberg.
But the Chilean government is determined to drive through the changes, in order to narrow the worst income inequality in the 34-member Organization for Economic Cooperation and Development (OECD).
“We understand that there are minority sectors that oppose” the tax changes, government spokesman Alvaro Elizalde told reporters April 10.
“The government will hear all parties, but we will advance in the transformations that Chileans are demanding,” he said.
The Chilean government’s tax reforms aims to raise 3 percent of gross domestic product to finance Bachelet’s election pledges, including free education for all.
“It’s one of the most important instruments the state has to produce conditions that allow us to be a more cohesive, democratic and just society,” Bachelet said in a televised speech April 1. “Those that have more must proportionally provide more. Those that make more money will pay more money.”