Controversial issues before the 2021 tax reform

For many, the exemptions available to companies should be reviewed and redesigned. They also add that the Government is thinking of solutions that imply less effort, and one of them is the VAT on the family basket.

It is expected that in the first semester the tax reform will be debated.

Fiscal and social reform; that would be the name that the national Government has in mind to give to the new tax reform, and it is planned that by the middle of this year it will be officially a law.

The following are the five phases in which the project is planned to be developed:

–First. During the week of February 22, the Commission of Experts on Tax Benefits will deliver the main recommendations for the modification of the country’s tax system.

–Second. With recommendations in hand, work would be done on the preparation of the project, so that it could be presented to the Government’s benches, as well as to the independent parties. In this way, proposals that may arise from the discussion would be socialized and reviewed.

–Third. In March, once the project has been discussed, it is expected that there will be an official report.

–Fourth. In April, the two debates necessary for its execution would take place, with the objective of its approval in May, in the plenary sessions of the Chamber and the Senate of the Republic.

–Fifth. It is expected to become law in June.

The debate on tax exemptions

The reduction or removal of tax benefits available to companies is an issue that has given much to talk about.

In this regard, Jeisson Ramírez Morales, public accountant and legal representative of Touché Asesores SAS indicates that there is no consensus on the effectiveness of tax exemptions in attracting investment and generating economic growth.

“However, I believe that it is time to eliminate tax exemptions that, in practice, clearly do not contribute and, on the contrary, complicate the tax system. But it is also time to try new exemptions that seek to stimulate aggregate demand,” he says.

Gustavo Cote, former director of the Dian, states that tax benefits translated into exemptions, exclusions, tax relief, discounts, special deductions, differential rates, among others, represent a very high fiscal sacrifice, which is accentuated to a greater extent in cases that have no justification whatsoever.

“If what is sought with the tax reform is a greater collection, its review and redesign are essential when defining the content of the bill that will be submitted by the Government to Congress in the coming months”, he points out.

VAT for the whole family basket, an issue that repeats and repeats itself

Jersson Oswaldo Rodríguez, Master in Business Administration of the Universidad Nacional de Colombia explains in Actualícese that the VAT issue for the entire family basket has been recurrent in the last tax reforms.

“How can it not be if it is clear that it is 1,000 times easier to look for new sources of income at the expense of citizens than to really restructure the whole system to correct those flaws that cause that what is collected does not reach its destination or that not even those who by law should be taxed are taxed”, he criticizes.

“the Government has an impressive eagerness to look for new resources to cover the fiscal coffers for a 2021 full of uncertainty”.

He says that the Government has an impressive eagerness to look for new resources that will allow it to cover the fiscal coffers for a 2021 full of uncertainty, before which it thinks of the solutions that involve less effort to attract greater income, and one of them is to increase the VAT on the family basket.

“However, this is a lackluster solution, to say the least, because I do not see how you can think of trying to keep pushing citizens with more taxes to keep depositing them in an ark that has unrestored holes,” he says.

For him, the only thing this will do is that money will continue to escape from the hands of the Government, leaving a State tired of taxes, promises and solutions that are only designed to save the political capital of the incumbent president.

Confidence that debates will take place during the first half of the year.

Renzo Merino, assistant vice-president of Moody’s Investors risk rating agency said in a dialogue with Actualícese that it is clear that a tax reform will be debated in Colombia this year.

“The fiscal reform that will be debated this year will be very important, because the magnitude of the adjustment that derives from it will influence the trajectory of government debt metrics after the deterioration experienced as a result of the pandemic shock,” he explains.

In line with what the national government has in mind, Merino is confident that the tax reform discussions will take place during the first half of the year.

“This must include issues related to the country’s tax system and other elements that affect fiscal accounts,” he stresses.

“The fiscal adjustment that Colombia must carry out in the coming years will be much greater than in the past, a factor that increases the importance of a tax reform”.

Due to the magnitude of the pandemic’s impact, the fiscal adjustment Colombia must undertake in the coming years will be much greater than in the past, a factor that increases the importance of a fiscal reform.

“In the past, Moody’s has stressed that the main fiscal challenges for Colombia include a narrower tax base than in other countries, as well as high structural rigidities in central government spending, elements that we believe would complicate the fiscal consolidation process if not addressed,” he says.

Source: Actualícese