Chamber and Senate approve Petro tax reform. These are the key points

( Spanish) — The Colombian House of Representatives passed a tax reform key for the government of President Gustavo Petro, with which it is expected to collect an additional 20 billion pesos a year (about US$ 3,987 million at the current exchange rate), an amount lower than the executive’s initial proposal.

The Senate had already approved the tax reform text a day earlier. Now it is expected to be reconciled in the House and Senate before it goes to presidential sanction.

The reform’s main objective is the fight against hunger and poverty, and will seek to give priority to education and public health and sustainability to public finances, according to the government. Before being modified, the reform initially sought to collect 25 billion Colombian pesos.

“The tax reform, as such, its central philosophy consists of two aspects: one, increase the country’s ability to pay, its ability to pay international commitments, which unfortunately grew very high in recent years, and two, increase social justice in Colombia”, President Gustavo Petro said after the approval of the reform in the Chamber.

These are some of the key points of the tax reform.

The goal of the Reformation

The tax reform aims to raise money to “reduce the huge social debt,” according to the government, and invest in issues of poverty, eradication of hunger and inequality. It also seeks to obtain more resources for social programs and reduce monetary poverty by four percentage points, According to the government.

It imposes, among others, taxes on ultra-processed foods, carbon taxes to discourage the consumption of fossil fuels, and single-use plastics, according to the president of the House of Representatives, David Racero.

Some key measures approved

• The reform seeks that those who have more income pay more taxes.

Those who have assets of more than 3,000 million pesos will pay a permanent tax of 0.5%; those with assets of more than 5,000 million pesos, a 1% tax, and 1.5% for those with assets of more than 10,000 million pesos, the latter on a temporary basis with a validity of 4 years, reported Reuters.

• Exempt income went from 50 million pesos to 120 million pesos. Benefits will be given to those who have dependents in their charge and electronic invoices for purchases of up to 9 million pesos, reported Reuters.
• The tax on occasional gains will rise from 10% to 15%.
• The Day without VAT, which had been approved during the government of Iván Duque, was eliminated.
• There will be prison for evaders: sentences of between 4 and 9 years in prison were established for those who do not pay taxes for more than 1,000 minimum wages (1,000 million pesos or US $ 200,000 at the current exchange rate) if this crime is incurred three times.
• The tax on single-use plastics was approved for the sale and import of products made with that material used to pack, pack or package goods for one time, Reuters reported.

This was a point criticized by the opposition, as they said that it would cost more to the pocket of Colombians due to a tax on food packaging. However, House representative David Racero He said that it will only apply for products that do not have to do with the food packages of the family basket, or used for medical purposes, or that have contact with animals for health purposes.

Taxes on sugary drinks

This is one of the most controversial points due to the impact it would have on Colombians’ pockets, since it could raise the price of some everyday consumer products.

The Chamber approved a tax on ultra-processed sugary drinks, whose rate will be based on the sugar content in grams per 100 milliliters and will have two types of rates depending on the amount of sugar in the food, as follows:

• Sugary drinks that have less than 4 grams per 100 milliliters of sugar will not pay taxes.
• Sugary drinks that have between 4 and 8 grams of sugar per 100 milliliters, the rate is 18 pesos per 100 milliliters
• And drinks that have more than 8 grams of sugar per 100 milliliters will pay a tax of 35 pesos per 100 milliliters.

A tax that would levy foods such as bread, dairy, honey, among ultra-processed foods subject to taxation.

The Senate and the House must reconcile the month of 2023 in which the collection of the tax will begin, Reuters reported.

In addition, ultra-processed food products with excess sugar will be taxed at a rate of 10% ad valorem in 2023, which will progressively increase to 15% in 2024 and 20% in 2025. The Senate and the House must reconcile the month of 2023 in which it will begin the collection of the tax.

The person responsible for this tax will be the producer and/or importer. And the first years it will be a low tax “to go looking for substitute options and it does not affect small producers”, said Racero, president of the Chamber.

According to him, this tax promotes public health because, he said, “the chances of suffering from diseases such as obesity, diabetes and dental caries are attacked, with a tax on ultra-processed products, for example, with excessively high sugar content.”

The purpose of this tax according to Racerois that consumers “look for healthy options or companies adjust the preparations to be less harmful”.

carbon tax

Congress approved the creation of a rent surcharge for oil companies with gradual rates: from US$67.3 per barrel and up to US$75 per barrel, the surcharge will be 5%. From $75 a barrel to $82.2 a barrel, a 10% surcharge, and above $82.2 a barrel, 15%, Reuters reported.

This surcharge will also apply to coal companies with rates of 5% and 10%, but the amounts that will determine the rate to be paid were voted differently in the Senate and House, so it will be defined in conciliation, reported Reuters.

Royalties will not be subject to income tax deduction.

“The subsoil assets of the nation since the Constitution of 1886 are property of the nation, they are public property, they are property of the Colombian people, and to that extent the nation, when it grants its economic exploitation by an individual, has the right to royalties and therefore, these are not part of the accounting of the private companies that have this concession and are not deductible,” said President Petro previously.

On the other hand, he announced the modification of the income tax surcharge paid by the oil and coal sectors. The contribution they make will depend on the international price of the products, so that if prices reach a certain low point there will be no surcharge. This was approved by the House.

According to Racero, this carbon tax has “environmental criteria” and its objective is “to discourage the consumption of fossil fuels.”

These monies will be allocated as of January 1, 2023 to the management of coastal erosion, the reduction of deforestation, the conservation of water sources, the protection, preservation and restoration of strategic areas and ecosystems, according to the approved article.

Surcharges were also created for banks and hydroelectric and oil companies.

What was left out of the reform

Days ago, the Petro government modified its tax reform and excluded one of the proposals that had generated controversy: the tax on higher pensions.

Under the premise of “taxing those who have the most”, the administration had proposed in the tax reform filed in Congress that pensioners who earn more than 10 million pesos per month would pay taxes for that concept. According to the calculations of the Minister of Economy, José Antonio Ocampo, this implied taxing 0.2% of pensioners with a tax of around 20%.

However, after a meeting with the tax reform rapporteurs of the parties that make up the Government, this reform proposal was withdrawn, as confirmed by the president at a press conference.

During the discussion of the reform in the Senate, days ago, articles such as the one that sought to tax certain activities of the churches were eliminated