Colombian government submits revised fiscal reform project

RIO DE JANEIRO, BRAZIL – President Iván Duque announced the “Social Investment” bill through which his administration hopes to raise 15.2 trillion pesos (about US$3,977 million) to guarantee public finance stability and economic reactivation and growth, severely impacted by the coronavirus pandemic.

“What we have before us is a social investment bill backed by income figures sufficient at this time to take the step that we deserve as a society,” Duque said while presenting the bill.

The most significant tax burden, which represents 60% of the projected costs, will be applied to business, as 6.7 trillion pesos will be collected with the adjustment in the corporate income tax rate and another 3.9 trillion pesos by lowering to 50% the existing reductions on the Industry and Trade Tax.

SAVINGS IN STATE SPENDING

The bill, to be submitted to Congress on July 20, when the new legislative session begins, is the result of over two months of talks in six regions of the country between the Ministry of Finance and different economic, social and political sectors.

Minister of Finance José Manuel Restrepo on Tuesday (13) explained that the other 40% of the total required revenue will be reached through a policy of savings in public spending and the incorporation of new instruments in the fight against tax evasion.

The public austerity proposal seeks to limit bureaucratic growth, control expenses in telephone plans, travel expenses, travel and advertising, reorganize security schemes, merge State bodies, and other expenses considered non-essential.

“With the central government’s efforts towards austerity in public spending, the fight against tax evasion and the solidary effort of the business sectors to contribute to this initiative, we were able to organize a bill that may raise some 15.2 trillion pesos,” Restrepo said.

PROTECTION FOR THE POOREST AND THE MIDDLE CLASS

The Government also committed not to impact the most vulnerable population and the middle class, the most controversial points in the previous tax bill, and in that respect did not include any VAT increases, taxes on pensions, or an expansion of the income tax base in the current bill.

“The first major consensus is related to concerns for the vulnerable,” Restrepo said, announcing that the current subsidy programs for lower-income households, small and medium-sized entrepreneurs and youths will be maintained.

The previous tax reform bill triggered massive protests in Colombia, which began last April 28 and continued for two months, a period which coincided with the most critical moment of the Covid-19 pandemic.

With that bill, the government hoped to raise 25 trillion pesos with unpopular initiatives such as expanding the tax base, or the progressive increase in income tax for people earning 2.4 million pesos a month.

The outbreak of an unprecedented social crisis in the country’s recent history forced President Duque to drop the initiative, which was never debated in Congress, and then to order the drafting of this new proposal based on a consensus among political parties, civil organizations, academia and the private sector.