Every three months, thousands of Chileans receive their property tax bill. For some, it is a routine procedure; for others, an uncomfortable reminder that the State charges them for living in something they already own. Why do property taxes exist? Are they truly an instrument of equity, or a form of double taxation?

A Territorial Tax with a Long History

The territorial tax, better known as property taxes, is one of the oldest taxes in the country. Its original logic was simple: to allow those who own higher-value real estate to contribute more to local financing. The idea was for municipalities to have resources to maintain streets, lighting, parks, and basic services that benefit, to a greater or lesser extent, all residents.

Chile’s Internal Revenue Service (SII) calculates this tax based on the fiscal appraisal of each property, determined according to its location, size, type of construction, and land value. Rates range from 0.98% to 1.2% annually, and primary residences with a fiscal appraisal below CLP 75 million are exempt. Approximately 60% of the revenue goes directly to municipalities, while the remainder is redistributed through the Municipal Common Fund to support municipalities with lower revenue-generating capacity.

By design, property taxes seek to reflect a certain “territorial equity”: those who benefit most from local infrastructure and public services contribute in proportion to their real estate wealth.

But Is It Fair to Pay for Something That Has Already Been Paid For?

Despite its rationale, the territorial tax generates broad opposition, especially among homeowners. The argument is not only emotional, but also philosophical and economic. And this rejection has been heard by presidential candidates, bringing special attention to a tax that for years was not widely debated.

When someone buys a home, they have already paid the corresponding taxes: VAT if the property is new, taxes on the income used to finance the purchase, and, in some cases, property taxes throughout the process. Charging periodically for owning it appears, in the eyes of many, to be a form of double taxation. Property rights, enshrined in the Constitution, imply the enjoyment, use, and disposal of the asset without having to “rent” it from the State. Under this logic, property taxes represent a permanent burden on an asset legitimately acquired with already-taxed resources.

The territorial tax can also be seen as a punishment for savings and financial planning. Those who save for years to buy a home end up paying every quarter for having done so; meanwhile, those who rent or keep their wealth in financial instruments do not bear that cost. In municipalities where fiscal appraisals rise rapidly, elderly or middle-income families can become trapped: owners of properties with high fiscal value, but without the liquid income needed to pay the taxes. This phenomenon, common in neighborhoods undergoing rapid appreciation, turns what is supposed to be a progressive tax into a regressive burden.

On a practical level, the territorial tax has significant distortions. Fiscal appraisals do not always reflect market values or the owners’ ability to pay. Furthermore, redistribution through the Municipal Common Fund weakens the connection between what each taxpayer pays and the services they receive. Thus, municipalities such as Las Condes or Vitacura contribute hundreds of millions, while others such as La Pintana or Cerro Navia receive only a fraction of that, without residents necessarily perceiving proportional improvements in their surroundings.

Reform? Eliminate? A Pending Debate

Ahead of the next presidential elections, property taxes are once again at the center of the debate. José Antonio Kast, currently the leading candidate to become Chile’s next president according to most polls, proposes eliminating the tax for primary residences, arguing that families should not have to pay for living in what they already own. Others propose reviewing the structure of the tax, maintaining its redistributive function while correcting its distortions: updating appraisals more equitably, adjusting rates to regional realities, and strengthening transparency in the use of resources.

The challenge lies in recognizing that the territorial tax has a legitimate fiscal rationale, but also unfair effects in its current application. Justified or not, increases in fiscal appraisals have led to significant increases in recent years. A fairer system should distinguish between real estate speculation and residential property ownership, between liquid wealth and assets accumulated through effort. The issue is not about abolishing the principle of contributing, but about ensuring that the State does not charge twice for the same thing: once for generating income, and again for using it to secure a home of one’s own.

León Hatton
Investment Analyst