Of electrons and tax reforms

COLOMBIA - Report 16 Aug 2022 by Juan Carlos Echeverry and Andrés Escobar Arango

The Petro administration submitted its tax reform proposal to Congress in August instead of October, out of sync with the usual timing. This was the first major act of the new government, which speaks volumes. Unsurprisingly, the expected yield is nowhere near the COP 50 trillion (3.5% of GDP, using next year’s GDP government estimate) initially announced, by any metric an absolute impossibility.

Instead, it aims at COP 25 trillion (1.8% of GDP) next year. From 2024, the yield should fall, according to the government itself, to 1.4% of GDP. If approved as is with a yield aligned with government expectations, the national central government will see its 2023 revenue rise from the 17% of GDP projected in the 2021 MTFF to a whopping 20.8%. As the oil boom recedes, the Petro administration should finish its term in 2026 with 19.6% of GDP in revenues instead of the 17.2% that the 2021 MTFF forecast.

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