Tax reform: tax reform bill to be presented on July 20

A political consensus must be reached for a new tax reform bill. Centro Democrático’s proposal seeks to expand coverage of social programs and protect formal employment. Hernando Gómez assures that collection must be increased by at least 1.5 points of the GDP.

The Minister of Finance José Manuel Restrepo continues trying to reach the necessary consensus for the next tax reform to go ahead. The idea of the national government is to present the bill next July 20.

Restrepo has told the media that the bill will not touch the middle class, nor will the VAT scheme and pensions be modified.

He confirmed that work is being done on the proposals made by the Andi, such as: the suspension of the Industry and Commerce tax discount -ICA-, postpone the reduction of the general income tax rate, establish the wealth tax for two years for liquid capitals over 5,000 million pesos with a rate of 1% and advance the alienation of the Nation.

While the country defines the course of the tax reform, which as it has already been aired in the media would seek to charge more taxes to companies and high-income individuals, experts point out that a path must be taken to alleviate the finances, even in the short term. Juana Tellez, chief economist at BBVA Research, states in the same publication:

Achieving political consensus quickly around a new reform project is a necessity for everyone. Families and businesses must soon be clear about the social spending resources they will receive, as well as the tax increases that will be given. Acting quickly will allow us to reduce uncertainty, increase confidence and allow the recovery process to continue.

Increase revenue collection by at least 1.5 points of GDP

In the June 2021 issue of Asobancaria‘s publication Banca & Economía, Hernando José Gómez, president of the entity, highlights that the good management of the fiscal policy, together with the monetary policy, were highlighted by foreign investors and risk rating agencies as pillars of the country’s macroeconomic stability throughout the years.

“Prior to the pandemic, rating agencies and analysts highlighted that Colombia was in default of structural fiscal reform”.

However, prior to the pandemic, rating agencies and analysts highlighted that Colombia was delinquent in carrying out a structural fiscal reform that would allow it to reduce its deficit and debt levels. According to Gómez:

With the withdrawal of the tax reform bill and the downgrading of the credit rating by S&P the outlook has become much more challenging and concerns about long-term fiscal sustainability have been considerably exacerbated. Thus, from his point of view, in order to preserve the investment grade rating granted by Fitch and Moody’s and maintain low funding rates for the Government, companies and households, it is necessary that a new reform bill is processed in Congress that allows increasing collection by at least 1.5 points of GDP.

In this way, it will be possible to stabilize the public debt towards levels of 60% and maintain social assistance programs such as the Solidarity Income, which have mitigated the increase in poverty.

Centro Democrático presented tax reform proposal

On June 15, 2021, the Democratic Center presented in Congress a tax reform bill with the idea of expanding the coverage of social programs, guaranteeing the protection of formal employment and establishing austerity measures in public spending. Focused on companies, the proposal proposes to suspend the ICA discount and that companies pay an income tax rate of 34 % until the taxable year 2031; 31 % by 2032; and 30 % as of 2033.

On the other hand, entities of the banking, trust, insurance, brokerage and insurance brokerage sectors supervised by the Superfinancial Superintendence, except for taxpayers of the special tax regime, will have to pay additional points to the income tax.

For the taxable year 2022, 2023 and 2024 such surtax would be of 3 additional percentage points, being the total rate 37 %. 50 % of this collection will be destined for the financing of microcredits for micro, small and medium enterprises, and the other half for infrastructure projects in tertiary roads and local roads.

Source: Actualícese