Tax reform and its new changes

The problem of the companies is not taxation, but the lack of demand, because, although the nominal rates of these are high, it happens that the richest do not pay taxes. Instead, the Government plans to raise taxes for individuals.

In front of the media, the Minister of Finance, Alberto Carrasquilla, made an initial diagnosis of the country’s finances and tax situation. He assured that “there is no problem that is impossible to solve”, he also said that the government of Ivan Duque faces an economy “in an unsatisfactory situation”.

“the idea is that tax collection will increase by 3 trillion pesos; evasion would decrease by about 25 billion pesos (50%)”.

Carrasquilla is already working on finalizing the details of the new tax reform to be submitted to the Congress of the Republic, which will revolve around three points: reduction of evasion, changes in corporate income and natural persons, and changes in VAT, where the VAT rate will not be touched. The idea is that tax collection will increase by 3 trillion pesos; evasion will decrease by about 25 trillion pesos (50%).

From the minister’s point of view, Colombia must have a tax system more focused on the international context; a strategy where the middle class, which has had an indisputable growth in recent years, must be part of the solution. Carrasquilla argued that in countries like the United States income tax is contributed 85% by individuals and 15% by companies, while in Colombia the opposite happens.

The idea is that the tax reform will increase the collection and at the same time have a positive effect on the revival of economic activity. “We have a tax structure that severely punishes competitiveness, formality, employment and entrepreneurship and, therefore, severely punishes the medium-term growth of the economy. We have to fix this problem,” said Carrasquilla at a press conference held on August 10.

For him, it is not only the 33% income rate that affects business development, but taxes such as ICA or presumptive income, which impact low profit margin activities or those that need time to consolidate. “It is something extremely onerous, because I am paying taxes in a context in which I do not have a single peso of profit. In a country that is progressing, projects need time to mature, so we must review the concept of presumptive income for a more dynamic one, of a more appropriate taxation,” said Carrasquilla.

Lower taxes for companies, higher taxation for individuals

The above words of Minister Carrasquilla can be summarized in that, as has been speculated and is an open secret, the Government plans to increase the number of individuals who will declare and pay income, to which are added more tax breaks for companies.

In this regard, Mario Alejandro Valencia, director of Cedetrabajo and spokesman for the Tax Justice Network, informed that all business perception surveys in the country show that the main problem of companies is not taxation, but the lack of demand, that is, the low disposable income of Colombian households, as a result -in part- of regressive tax reforms that have increased taxes on workers.

“What the State must do is to reinforce the siege against evasion, capital flight to tax havens, corruption and eliminate tax benefits. With these additional resources, the provision of public goods should be increased in order to increase competitiveness, which is in the doldrums,” Valencia emphasizes.

“Now, if taxes are lowered for companies, they must be raised for someone else; obviously for individuals by increasing the taxable base or by means of more VAT”, he adds.

For her part, Cecilia López Montaño, former minister, economist, and founder of CiSoe indicated that everyone agrees that the nominal rates of companies in Colombia are very high, but this happens because the richest do not pay taxes, which is the case in OECD countries. “So, this can have a big impact for the owners of the companies that are used to hide all their income through the companies”.

For her, there has to be a separation; individuals as taxpayers are one thing and companies are another. “The president-elect has said that he is going to lower taxes on companies, then he will have to raise them on rich individuals, otherwise the difference between the OECD GDP taxes and ours will be gigantic, and it will not be able to be maintained permanently”, she explains.

Source: Actualícese