Chile's Congress approved almost the entirety of President José Antonio Kast's sweeping tax and economic reform package on July 21, marking a significant legislative win as he battles a sluggish economy just over three months into office.

The economy contracted 0.5% in the first quarter of 2026 after months of weak growth, while unemployment climbed to 9.4% between March and May, its highest level since June 2021.

The legislation gradually cuts the corporate tax rate for large companies from 27% to 23%, close to the average among developed economies, and exempts newly built homes from VAT. It also limits which new universities can join Chile's free tuition programme and allows companies to seek compensation when environmental disputes delay investment projects, including a 20-year freeze on tax conditions for investments exceeding $350mn.

The Senate approved the bill the previous week with amendments, sending it back to the lower house, which passed every change except one covering how municipalities will be compensated for tax breaks. That single issue must still be resolved before the law can be enacted.

Finance Minister Jorge Quiroz called the outcome a win for investment certainty, saying Chile had removed permitting barriers that had held back projects and economic activity. Kast, speaking from Copiapó where he was overseeing the government's storm response, said he hoped all political sectors would work together to resolve the remaining issue quickly.

According to AFP, political analyst Rodrigo Arellano, of Universidad del Desarrollo, said the reform marks a shift after years in which Chile's tax debate focused on raising rates rather than cutting them. Fellow analyst Gilberto Aranda, quoted by AP, described Kast's approach as a return to the market-oriented model associated with the 1973-1990 dictatorship era.

Opposition lawmakers strongly criticised the bill, arguing it favours large corporations and wealthy Chileans at the expense of social spending on health and education. Broad Front coalition president Constanza Martínez said Kast's campaign focus on security and immigration had served as a "Trojan horse" for tax cuts benefiting the richest. Polling firm Cadem found 56% of Chileans oppose the corporate tax cuts, and opposition parties have said they will challenge parts of the law at the Constitutional Court, potentially delaying its enactment.

Despite the criticism, business groups and some citizens welcomed the reform. One Santiago shopkeeper told reporters that lower taxes and greater certainty for investors would ultimately translate into more jobs.