What economic impact will the tax reform have in Colombia?

First modification: 05/11/2022 – 03:05

The Colombian Congress approved this week a tax reform bill that will allow it to collect 20 billion pesos -or 4,000 million dollars- annually in the next four years, based on the increase in taxes on oil and coal.

The new law, flag of the economic policy of the new president Gustavo Petro, aims to finance social projects and put the public finances of the Latin American country in order.

But the reform has drawn criticism from business groups, who argue that levies on the country’s main exports will discourage investment, while uncertainty over the bill has contributed to a sharp drop in the peso, with the currency hitting a record low against the dollar.

In addition to tariffs of up to 10% on coal and up to 15% on crude oil, when prices exceed a certain level, the law will impose higher taxes on people who earn more than 10 million pesos, about 2,000 dollars a month. as well as single-use plastics, sugary drinks and ultra-processed foods.

“Congress approved a historic law whose purpose is to help reduce a huge social debt. It is a tool that will help eradicate hunger, reduce poverty and inequality, as well as the privileges of a few, and advance in the face of inequity” , affirmed the Minister of Finance, José Antonio Ocampo.

According to Ocampo, monetary poverty would be reduced by four percentage points, which is equivalent to two million people. That is, “thousands of homes throughout our geography that are going to have a better life,” according to the head of the Colombian Treasury.

In addition, he assured that this is the most liberal tax reform in history and the most consensual, since the official spent more than 300 hours addressing concerns and resolving doubts from various sectors to have the “greatest possible consensus.”

President Petro has also pledged to transition to clean energy, although his executive said last week he could reverse a much-criticized ban on new oil contracts.

The new law establishes that oil companies will be taxed an additional 5% when international prices are between 67.3 and 75 dollars per barrel. It will then become an additional 10% when prices are between $75 and $82.2 a barrel, and 15% if they go higher.

Coal companies will face similar additional charges. Oil and mining companies will also not be able to deduct the value of royalties from income tax, a signal that the markets and the hydrocarbon sector received negatively. The peso fell to a record low of 5,070 per dollar before the bill’s approval. So far this year, the currency has depreciated 25%.

with EFE