Constitutional Court scraps the 2018 tax reform, but gives the Government a way out

COLOMBIA - In Brief 16 Oct 2019 by Andrés Escobar Arango

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The Constitutional Court scrapped the 2018 Financing Law in its entirety, as far as we know a first in an already long and well-known history of Colombian tax reforms. The Court’s ruling, the result of a 6-3 vote, considered the bill approved by the Senate was not given adequate publicity prior to the final vote in the House of Representatives in December of last year; then, without fully knowing what the Senate had approved, the House went ahead and voted the Senate’s version without debating a single article. The process clearly came short of constitutional requirements.As expected, however, the Court gave the Government a reasonable way out, as it decided the ruling will come into effect only in January 1st of next year. In other words, while the ruling scraps the reform, it allows the Government to keep all the reform-related tax collections obtained so far or yet to be obtained this year, but forces Minister Carrasquilla to re-submit the same reform to Congress and get it approved before yearend. If, come January 1st 2020, Congress has not approved the new bill, the tax code will revert to its pre-Carrasquilla version.In spite of the fact that throwing a lifeline to the Government means the ruling is not catastrophic in fiscal terms, as Minister Carrasquilla would have public opinion believe during the last few days, it nevertheless deals an enormous blow to the Government. It is, for starters, a big political defeat for President Duque, who thought he had already managed to make good on the presidential campaign promise to cut corporate tax rates. It is also an example of what can happen when Congress takes control of the debate of key economic reforms.Moreover, ...