Habemus tributum

COLOMBIA - In Brief 04 Nov 2022 by Andrés Escobar Arango

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After almost two months of discussions, the tax reform of the Petro administration is almost a reality. We say “almost”, because the texts approved by the Senate and the House are not identical, which means that a reconciled version will have to be approved early next week. As we do not expect any problems in reaching a vote on the reconciled version, the reform will be swiftly sent to the Presidential Palace to obtain President Petro’s signature. Once that final step is taken, this reform will become part of the Colombian tax code. Even though the government showed the muscle of its coalition in Congress, the expected revenue of the reform, announced at 1.6% of GDP in 2023 after its submission to Congress back in August, has been watered down to 1.3%, as Table 1 (panel a.) shows; in other words, the reform will collect 20% less than initially expected. In terms of composition (see panel b.), 70% of the revenue next year will come from taxes paid by corporations, clearly reflecting the anti-investment bias of the reform; moreover, 75% of that revenue will come from specific taxes on oil and mining, which could face corporate income tax rates as high as 50%. Table 1. Expected revenue from the tax reform a. % of GDP b. % of total revenue Source: Finance Ministry, EConcept As times goes by, these oil and mining taxes are expected to collect less; from 0.7% of GDP next year to 0.2% in 2026. Part of that loss should be compensated, according to the Finance Ministry, by individuals, other corporations and health taxes; at the end of the day, when President Petro leaves four years from now, the reform should collect 1.2% of GDP. Two comments are in order. The first is that th...