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Petro sees tax reform proposal dilution in Colombia

On Wednesday, the Gustavo Petro administration sent the Colombian Congress a tax reform somewhat different from the one presented in early August. The joint special committee will begin discussing the plan this Thursday.

The new bill is the result of weeks of negotiations with the opposition and businesspeople. Protests that attracted thousands to the streets last week and subsequent meetings between Gustavo Petro and former president and right-wing leader Álvaro Uribe also played an important role in convincing Finance Minister José Antonio Ocampo and his team that changes were needed.

The new proposal is more modest than the original; it now aims at raising about COP 22 trillion (USD 4.8 billion) in extra revenue to fund social programs and meet fiscal deficit reduction goals.

The original target was COP 25 trillion — a result never before achieved by any reform in the country, and one that, economists told The Brazilian Reportwas likely to be watered down by Congress.

Once the biggest knot in the tax reform, the government has given up on a new 10 percent tariff on oil and gas exports after consultancy firms found it unconstitutional, saying it would go against free trade agreements to which Colombia is a signatory.

The associations representing the sector warned that an additional tax burden could increase the government’s take rate by 20 to 22 percent and that it could also affect investments, frustrating expectations to contribute COP 90 trillion in tax revenues in 2023.

The new proposal replaces the export taxation with a surcharge on the 35% income tax paid by oil and coal companies, equivalent to 10% in the first year, 7.5% in the second, and 5% percent in the third year.

Ultimately, the mining sector will contribute COP 9 trillion of the expected amount from the reform next year.

Despite the extra revenue, the reform will not bring about a paradigm shift: unlike in most countries, corporate taxes will continue to account for most of Colombia’s tax revenues.

The country’s tax intake made up 13.8 percent of GDP in 2021, but only 5 percent of that came from individuals. In other OECD countries, about two-thirds of tax income comes from individuals.

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