Financing law: income tax, vat, and other items to be considered

The director of the DIAN explained a series of points included in the financing bill presented on October 31. He talks about the gradual reduction of VAT and the VAT refund, as well as the novelties of the income tax for companies and individuals.

The National Government presented on October 31, 2018, before the Congress of the Republic, the draft of the Financing Law with which the green light would be given to the 258.9 trillion pesos of the general budget of the nation for 2019, which still lacks 14 trillion pesos. Only VAT alone is expected to have a total of 11 trillion pesos.

Government will lower VAT to 17% and will tax almost the entire family basket of goods and services

The Financing Law includes a gradual reduction of VAT from 19% to 17%. Likewise, this tax will be universal, except for health and public services. In addition, a refund of this tax will be made to the poorest people in the country.

“Initially, in 2019 the Government will reduce the VAT from 19%, the current rate, to 18%, and after that, in 2020, the rate will be reduced to 17%”.

The director of the Dian, José Andrés Romero, has said that worldwide all countries have VAT with universality; this tax is sought to be equitable for people with lower resources. “The idea is to make sure that the VAT that people pay can be compensated through an efficient mechanism that works,” Romero explained.

And how will the VAT be refunded?

Regarding the VAT refund for low-income families, Romero stated that it will be done through a system similar to Sisbén, which will guarantee, taking into account the different ranges of families and their consumption, the level of VAT that they should be paying. Approximately three million families would be refunded.

Income tax for high income taxpayers will increase

Regarding income tax for individuals, the Government expects to improve the system and make it easier for those who earn little, as well as for the middle class. The idea is to unify the cedulación system and establish a fixed deduction of costs that will help the Dian to establish a base that consults its contributive capacity.

“What we calculate is that a person who earns up to 10 million pesos is middle class. From this figure onwards he/she will start to have limitations. People with incomes above 50 million pesos are those who can contribute much more to the country,” Romero explained.

People with higher incomes and high salaries will have a higher tax burden, since two additional rate ranges will be added, no longer at 33% but at 35% and then at 37%. In addition, they will have a limitation on these benefits as had been applicable.

Income tax rate for all companies will be lowered to 30%.

The business sector will have incentives, such as the reduction in the income tax rate from 33 % to 30 %, tax discounts in the ICA and in the 4×1,000.

Regarding the 4×1.000, the director of the Dian has said that it will be maintained, but as a collection mechanism. “The 50% of the 4×1.000 may be taken as deductible from income tax, i.e., an advance payment of income tax, which will lead to a lower effective tax rate. It is not eliminated because there is still a lot of informal economy and because the informal workers that contribute with the 4×1,000 are still important”,

On the dividend tax

The Financing Law seeks to exercise greater control over the tax on dividends. “Dividends of natural persons are already taxed. There will be an anti-avoidance rule for the dividend when it reaches the company”, stated Romero. The decision was taken because there are people who dedicated themselves to create “umbrella” companies so that the dividends would be drawn to them and thus avoid the payment of the tax.

The tax on dividends for individuals will not change in this Financing Law. Romero explained that it will be maintained, but they are working on a way to handle cases in which individuals create vehicles that allow them to defer this type of tax.

Wealth tax returns

The wealth tax, eliminated in the Santos administration, will revive, but focused only on people who have the highest wealth in Colombia. “We are including a wealth tax for high-income individuals. For example, those who have a wealth of more than 3,000 million pesos we believe that they are on equal terms to those who earn 50 million pesos to contribute more to the country, but without affecting the companies that are the factor of the economy,” explained the director of the Dian.

Source: Actualícese