The mega legislative reform prepared by the right-wing administration of President José Antonio Kast, which aims to implement transcendental changes in the functioning of the Chilean tax system, is presented this week for debate in the National Congress with some measures that impact various areas of the economy, such as the labor market. The also known as the Economic and Social Reconstruction and Development Bill includes among its 40 proposals the elimination of the tax franchise, an incentive that has been provided for 50 years by the National Training and Employment Service (Sence), the public body responsible for the training and reinsertion of workers in the South American country.
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The Minister of Finance, Jorge Quiroz, has defended the end of this incentive and has mentioned the need to reduce public spending. “Among the spending containment measures, the project contemplates the elimination of the Sence tax franchise. No one who has analyzed it has a positive opinion of its effect. Unfortunately, here the country wasted an opportunity,” Quiroz said last Friday during a press conference. The Secretary of State has assured that the use of the franchise has lent itself to “abusos” by some people and has insisted that labor education programs will not disappear. “This does not mean that we are going to neglect the training system. Today there are other forms of training. Developed countries are widely using the on-the-job learning system,” he stated.
The Executive’s idea has been questioned by some actors in the Chilean labor system. The Intermediate Technical Body for Training (OTIC) of the Chilean Chamber of Construction (CCHC) has warned about the consequences of eliminating the Sence tax franchise. “The measure represents a feasibility risk for the Reconstruction Plan due to the scarcity of qualified human capital,” it warned in a statement.
What the tax franchise is and how it works
The training tax franchise was created in 1976, the same year Sence opened. The public entity defines it as a tax incentive provided by the Chilean State that is granted to First Category taxpayer companies. Specifically, the franchise allows deducting from the tax payable the amounts invested in training programs for workers, potential workers (pre-contract), or former employees of the company (post-contract), with the scope, limits, and amounts established by Law N°19.518. In this way, training (a minimum of eight chronological hours) or the evaluation and certification of labor competencies (which formally recognizes the knowledge, capacities, and aptitudes to perform specific functions of a job, regardless of how they were acquired) for women and men over 15 years of age, whether they are workers or people not linked to the company, is financed.
Requirements to access the incentive
The current regulations establish that companies benefiting from this franchise must have an annual payroll of taxable remunerations exceeding 35 monthly tax units (UTM), equivalent to 2,446,115 pesos (about 2,700 dollars), be first-category taxpayers, and have paid their workers’ social security contributions. Companies interested in this program can fill out an online application form on the official Sence website.
Advantages and criticisms of the system
Sence has described the advantages of this mechanism for worker growth and business productivity. “It is proven that the higher the degree of human capital training, the more efficient its productivity. Furthermore, it is a relevant factor in personnel identification with the company, the reduction of worker turnover, the prevention of work accidents, adaptation to the needs of the times, and the demands of technological and economic changes,” the organization said in a text issued months before the Executive’s announced proposal became known.
Beyond this perspective, the implementation of this program and the functioning of the institutions linked to labor training has been the subject of constant criticism. Among the criticisms are its high fiscal cost —around 300 million dollars a year—, its apparent low efficiency in employee education, and the financing of initiatives in large companies while postponing small companies.