September 4, 2012 / 11:43 PM / 7 years ago

Chile's Congress approves tax reform to overhaul schools

* Tax law changes to boost annual revenue by some $1 billion

* Revenue will help overhaul protest-hit education system

* Congressional vote a much-needed victory for unpopular Pinera

By Alexandra Ulmer

SANTIAGO, Sept 4 (Reuters) - Chile’s Congress approved on Tuesday major changes in tax laws aimed to provide funds for an overhaul of the nation’s protest-hit schools, handing unpopular President Sebastian Pinera a welcome victory a month from municipal elections.

The tax overhaul driven by Pinera’s rightist coalition will increase state revenue by some $1 billion per year - about 0.4 percent of gross domestic product (GDP) in the world’s biggest copper producer.

Businesses in the Andean nation will face a higher tax rate of 20 percent and fewer loopholes to evade them, though the tax rate remains well below Latin America’s average rate of 25.06 percent in 2011, according to accountancy firm KPMG.

Hefty tax cuts planned for the most wealthy were removed from the bill after months of jostling in Congress. T ax rates for lower income earners drop on a sliding scale.

Billionaire Pinera, rated the most unpopular leader since Augusto Pinochet’s bloody dictatorship ended in 1990, unveiled the proposed reform in April in response to massive student-led protests demanding free education and greater equality.

While the Andean country has long been held up as an economic model in Latin America, it was rated the most unequal country of the 34-member-state Organization for Economic Cooperation and Development, or OECD.

The reform is not expected to calm student protests for free and improved education.

“(The reform) is more about the rhetoric that they can use around it as they head in the election and less about the real impact it will have on the student movement,” said Risa Grais-Targow, associate at Eurasia Group in Washington DC.

Its approval lands right before local elections on Oct. 28, which will give an indication of how the right and the left - both struggling with low approval ratings - could fare in the 2013 presidential race.

Pinera, whose approval rating is languishing at 27 percent according to a recent survey by pollster CEP, is barred by the constitution from running for a second consecutive term.

The reform could give his conservative bloc a small boost in next year’s presidential election, when leftist former President Michelle Bachelet is widely expected to try to stage a comeback.

“This is undoubtedly going to help the right more than Michelle Bachelet,” said Ricardo Israel, professor of law and political science at the Universidad Autonoma de Chile. “The right is taking away a flagship part of Michelle Bachelet’s campaign ... she’s going to have to move even more to the left.”

Bachelet, the current executive director of U.N. Women, has yet to say whether she will run.

Public Works Minister Laurence Golborne, Defense Minister Andres Allamand and Economy and Tourism Minister Pablo Longueira are seen as the front runners of the conservative bloc, which ended two decades of left-wing rule in 2010.

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