Alternative Approaches to Taxing the Financial Sector: Which is Best and Where Does Chile Stand?
In contrast to the enthusiasm of some observers for sweeping reforms to financial sector taxation (such as abolishing taxation of capital income or introducing a universal transactions tax), this paper argues that practical policy needs to pay special attention to the potential for tax arbitrage, and to avoiding a system that is too sensitive to inflation. A review of the main features of Chile's financial sector taxation regime (in particular the stamp taxes on checks and on loans) against this background shows some strengths, though the rates are somewhat higher than would result from a VAT applied systematically to financial services at the standard rate.
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