These would be the greatest impacts that the tax reform would bring

The Gustavo Petro government’s tax reform project has generated positions for and against various elements. Thus, from Deliotte, Diego Cubillos, Tax and Legal partner of the consulting firm, spoke with Portafolio about some of the impacts that the reform would bring to people and companies.

(‘With taxes we would be the least competitive country in the OECD’: Andi).

How do you see the possibility of approving a $25 billion tax bill?

It is a historically high sum, challenging, with many comments. The problem is that this amount falls on the taxpayers themselves. A large part in people, workers, who are already paying taxes and will see significant increases. At the lower levels of the table we see increases that will exceed 50%. And those first ranges are from $10 million and up.

The task is incomplete and falls on judicious taxpayers when it should be to expand the population that pays taxes. Many do not and have higher incomes, work informally but move a lot of money.

(Oil companies in Latin America, between the transition and the energy boom).

A second comment is that some studies mention that collection problems arise at high levels of taxation, because whoever is affected by a high rate will look for options, such as leaving the country, planning alternatives, or even avoidance schemes. This can have effects on the generation of employment and investment, because although it falls on natural persons, it burdens investors and shareholders.

In natural persons, how do you see the definition of income tax?

The base of $10 million is a subject that we could call subjective, and should be deepened with more objective elements. Some characteristics must be considered to define someone with a high income. A single person with no obligations is not the same as one who earns the same, has 3 children, and pays rent or a mortgage loan.

It remains to complement that range and establish the taxpaying capacity of a person and not generalize that everyone who earns $10 million is rich.

Another important part of the reform falls on companies, how do you see that?

In legal persons, the same general income rate of 35% continues and for the financial sector the surcharge of 3 points, at 38%, but the reform seeks to make it permanent. A low nominal rate is useless if your tax base is high, you have to look at how much the effective rate is, how much is actually taxed on income. Although the rate is not increased, the taxable rate is increased, since benefits are being restricted to some companies, to non-profit entities, and it also affects donations made in areas such as research, the environment, and science and technology.

These instruments are being restricted, and the real tax that will be paid is high.
In addition to that, there is talk of a 35% rate that applies to profits, but when these are distributed to shareholders they increase again, with a dividend tax that would reach 39%, profits will be taxed twice. Investors will think twice before investing in Colombia.

(What are instant payment systems and how do they work).

How do you see the conditions of the project for extractive industries?

There is a very large effect. It is one of the examples of how, although the nominal rate would be maintained, with the restrictions on the deductibility of royalties, which is one of the largest and most important expenses in this industry, it causes its tax base to skyrocket. Without the deduction of royalties, a rate would be reached, only for rent, of more than 50%.

This has a strong impact on the sector, but is consistent with the government’s goal of migrating from an extractive economy scheme to a cleaner one. It should be a transition process in the medium and long term, since Colombia depends a lot on taxes and resources for these companies. Although they are viable changes, they should be made more temporarily.

There are also other new taxes on extractive industries, which may generate resources for the State, but collaterally there are effects that could be negative for the economy.

The reform introduces ‘healthy’ taxes, how effective are they?

As the President and Minister Ocampo have said, more than taxes, the aim is to raise awareness about this type of food and drink. More than the collection is due to a health issue. I consider them valid, but it also has an economic effect on the population whose diet is based on this type of food.
It is an issue that has been analyzed for several reforms. It is time to mitigate the negative effects of these products, but there are several ways, not only tax.

Laura Lucia Becerra Elejalde