Tax reform: new Anif proposals

Taxing high pensions allows redirecting subsidies to finance social programs.

The structure of the dividend tax makes its payment inefficient. Proposal on the new wealth tax would be temporary, with an initial validity of four years.

On May 31, 2021, the Center for Economic Studies Anif presented the offprint La reforma fiscal: camino a la sostenibilidad y a la salida de la crisis social, in which it presents new proposals focused on a more modest tax reform. The idea of the entity is to achieve an additional collection sufficient to manage the state of public finances in the short term. “With this new reform scheme we propose an estimated collection of about $13.8 trillion pesos, that is, about 1.4% of the GDP”, Anif indicates.

Taxing high pensions

Pension subsidies are concentrated in the highest deciles of the income distribution, which is highly regressive and one of the major causes of inequality in Colombia.

Therefore, “taxing high pensions is a first step towards a pension reform that allows for a coherent old age protection system. At the same time, it allows for a redirection of the pension subsidy to finance social programs”.

“implement a flat rate of 10% for pensions with a monthly payment of more than 6 million pesos”.

Anif’s proposal on this point is to implement a flat rate of 10% for pensions with an allowance of more than 6 million pesos, that is, 10% of the highest income pensioners.

This would generate a new collection of 428,000 million pesos (0.04% of the GDP) from the payment of the tax of around 43,000 people.

Simplifying the dividend payment structure

The structure of the dividend tax makes its payment inefficient. In this regard, Anif proposes to simplify the tax payment structure for individuals or legal entities with tax residence in Colombia.

Based on this, the proposal touches on three points:

1.The current marginal rate would be increased by 2.5 percentage points for dividends in the event that the shareholder is a natural person.

2.In the event that the dividend income of a natural person exceeds 75% of the total income, the proposal is to apply the structure of marginal income tax rates for natural persons.

3.Maintain the tax payable on dividends when the shareholder is a legal entity (rate of 7.5%), as withholding tax on income. This would only apply to the company receiving the dividends for the first time.

The new tax structure would have the potential to generate close to 500,000 million pesos (0.05% of the GDP) of additional collection every year.

Temporary wealth tax for four years

The wealth tax structure is not very effective, a flat rate of 1 % is charged for wealth over 5,000 million pesos of liquid wealth, which creates incentives to evade or avoid payment. Anif explains:

Our proposal proposes a gradient structure that imposes marginal rates for the different brackets, starting from a threshold of liquid assets above 1,500 million pesos. In this scheme, assets between 1,500 and 2,000 million pesos would be taxed at a marginal rate of 0.75%. Followed by rates of 1 % for assets between 2,000 and 2,500 million pesos and 1.25 % for assets between 2,500 and 4,000 million pesos. Finally, a rate of 1.5% is proposed for liquid assets exceeding 4,000 million. Under the proposed system, the taxpayer base would be expanded from about 7,000 to about 30,000 taxpayers. Thus, the additional collection for this concept would be 343,000 million pesos (0.03% of the GDP).

Anif clarifies that its proposal on the new marginal wealth tax would be temporary, with an initial validity of four years, during which time a large part of the debt acquired for the costs associated with the COVID-19 pandemic must be defrayed.

Source: Actualize