The progress of the new 2019 tax reform

Through Bulletin 46, the Ministry of Finance announced the filing of the report for the first debate of the tax reform bill “Economic Growth Law”.

This text includes specific measures that, according to the Government, would help both the middle class and the most vulnerable.

“The Ministry of Finance announced the filing of the report for the first debate of the tax reform bill called “Economic Growth Law”.

After having filed before Congress the bill with which it would give continuity to Law 1943 of 2018, declared unconstitutional by the Constitutional Court through Ruling C – 481 of 2019, the Ministry of Finance announced the filing of the presentation for the first debate of the tax reform bill called “Economic Growth Law”.

The stated new 2019 tax reform would be based on the objectives that drove the Financing Law, but with certain modifications in accordance with the proposals submitted by the banks and the analysis carried out by the Ministry of Finance and the Dian.

What are the main changes of the new 2019 tax reform?

Among the modifications that we announced lines above, four specific measures included in the text of the paper have been highlighted, which would aim at strengthening the middle class and would help the most vulnerable sectors (see Bulletin 46 of November 26, 2019, issued by the Ministry of Finance). Such measures include:

– VATrefundfor 20% of the most vulnerable population.

– Gradualdecrease ofthe health contribution rate for pensioners receiving one (1) minimum wage.

–Creation ofadditional tax incentives for employers who hire young people between 18 and 28 years old.

–Three(3) days without VAT per year, in which clothing, footwear, supplies, among others, could be purchased.

SIMPLE taxpayers may not be liable for VAT.

As we had already expressed in the editorial mentioned above, in the reform bill filed the controversial text of numeral 7 of paragraph 3 of article 437 of the Tax Statute -ET- had been included again, according to which it is not possible to belong to the simple taxation regime, and at the same time operate as not responsible for VAT.

However, this condition would have been clarified by Decree 1468 of 2019, in which it was established that the prohibition of numeral 7 of the mentioned article would only apply to those taxpayers that develop any of the activities contemplated in numeral 1 of article 908 of the ET.

Therefore, in the new version of the bill it would be proposed to eliminate such numeral, considering that not all taxpayers that register in the SIMPLE would become liable for VAT.

Having said the above, it would be understood that natural persons that only carry out activities from numbers 2 to 4 of article 908 of the ET could belong to the SIMPLE and at the same time operate as not liable for VAT, provided that they comply with the requirements described in numbers 1 to 6 of paragraph 3 of article 437 of the ET.

Therefore, the new tax reform would formalize such indication by force of law, adding within article 437 of the ET a paragraph 4 to indicate that only SIMPLE taxpayers that develop any of the activities described in paragraph 1 of article 908 of the ET (stores, supermarkets, mini-markets and hairdressers) could appear as not liable for VAT.

Consumption tax on real estate would be eliminated.

“Among the proposals is that of eliminating the national consumption tax -INC- on the sale of real estate whose value is equal to or greater than 26,800 UVT.”

Among the proposals is that of eliminating the national consumption tax -INC- on the sale of real estate whose value is equal to or greater than 26,800 UVT, contemplated in the of Article 21 of the bill with which Article 512-22 of the ET would be added (initially included by Article 21 of Law 1943 of 2018.

Exempt income for magistrates and judges.

It is proposed to amend article 206 of the ET to include numeral 7 (repealed by article 122 of Law 1943 of 2018) regarding the income tax exemption for 50% of the salary of magistrates and prosecutors, which would be considered as representation expenses. For judges, the exempted percentage would be equivalent to 25% of the salary.

Likewise, it would be specified that such exempt income would not be subject to the limitations set forth in numeral 3 of Article 336 of the ET, according to which exempt income and deductions could not exceed 40% of net income, nor the equivalent of 5,040 UVT.

Reduction of the marginal rate of income tax on dividends.

In the text of the proposal it is proposed to modify article 27 of the reform project, in order to reduce the marginal rates of income tax on dividends and participations established in article 242 of the ET, which would be 0% and 10%, applicable to resident individuals who receive dividends from the distribution of profits, considered as income not constituting income or occasional gain, according to the procedure of article 49 of the ET.

Such amendment would be made jointly with Articles 43 and 44 of the draft law, with the purpose of agreeing the withholding tax rate at source for income on dividends at 10%, when the distribution of profits is considered as non-taxable income.

However, the withholding at source rate of 7.5% mentioned in Article 242-1 of the ET for non-taxed dividends received by domestic companies is maintained.

Source: Actualícese