Colombia trusts its tax reform to tackle the global financial crisis

Amid predictions of higher inflation and a expansion calculation reduction for Latin America in 2023, representatives of the Colombian government were confident that President Gustavo Petro’s tax reform will lead the way in addressing the needs of low- and middle-income people in the country.

This was stated by the Technical Deputy Minister of Finance of Colombia, Gonzalo Hernández Jiménez, who participated in the panel on Wednesday.Policies for People: Inclusive Decisions in Tight Budgets‘, as part of the Annual Meetings of the International Monetary Fund (IMF) and the World Bank in Washington DC.

Hernández Jiménez acknowledged in statements to the voice of america that the adverse scenarios of the world economy “become challenges and challenges for the Colombian economy, and for other developing and emerging economies as well.”

“That limits the fiscal space that countries have and in the search for a fiscal space that allows us to attend to the social needs that are a priority in Colombia, the government decided to file a tax reform from day one (…) it is important mention that it is a progressive reform,” said Hernández Jiménez.

The deputy minister elaborated that through said reform, “people who have higher incomes and more wealth contribute more to collections, and there are also some sectors that currently have good profit conditions that can contribute more to this collection.” .

Among other things, the tax reform seeks that people with incomes below 10 million pesos (about 2,167 dollars) do not pay more taxes, so that two out of every three additional pesos collected with the reform would come from people who have higher incomes. to 20 million pesos (about 4,334 dollars) per month.

50% of all the collection of the reform has to do with the oil and mining sectors, by not allowing the deductibility of royalties, according to Hernández Jiménez, who added that at this time of global economic crisis the oil and mining sectors have extraordinary profits, and therefore, they can contribute more to the fiscal sector.

“What we have is an elimination of many tax benefits that we do not see directly associated with socially desirable objectives, and by eliminating those sectoral tax benefits, we are also leveling the playing field so that medium and small companies have the possibility of advancing as they are doing. big companies,” he said.

On the other hand, the deputy minister alluded to the solid position of the dollar over the Colombian peso, and blamed it on the differences in monetary policy in advanced economies and developing policies. “The increases in interest rates in the United States mean that developing economies have to also increase their interest rates in order to reduce the difference that is associated with capital outflows. It’s one of those global challenges,” he said.

Hernández Jiménez ruled out that a possible recession in Colombia could worsen with the tax reform, assuring that “if you invest in more social and economic infrastructure such as the accumulation of human capital, all of these are good for economic growth.”

Colombia’s legislative calendar establishes that the tax reform could be approved by the end of November. This has already received approval from the economic commissions of Congress, and will proceed to be discussed in the plenary session of the Senate and the House.

The IMF announced on Tuesday that it cut its expansion projection in 2023 due to changes in commodity prices and external financing conditions. Now, the output expansion in Latin America and the Caribbean is forecast to slow by 0.3 percentage point to 1.7%.

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