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Until Monday, when the need for a tax reform was discussed, the government’s position was that a change in this regard should be part of a fiscal adjustment project, which It involves a reduction in public spending, but without specific dates on the presentation of the text to the Congress of the Republic.
But this week, the Minister of Finance, Alberto Carrasquilla, pointed out that once they have inputs such as that of the Committee of Experts that reviews five aspects of the tax statute, including exemptions, and a socialization is made with different actors, the bill will be presented in the first quarter of 2021 to the Legislative, with which the changes would take effect in 2022.
Although Carrasquilla said to the media that there are still no details about the project, the explanation of the need to adjust the tax statute is known and simple: the cost of addressing the mitigation of the pandemic.
(It may interest you: The 4 key points of the tax reform, according to Anif)
Due to covid-19, the Government not only had a reduction in tax collection, to the point that it set a lower goal for the year, but also had to increase public spending to adopt mitigation measures, with items such as the Program of Support for Formal Employment (Paef), to subsidize the payment of the payroll of the companies, or the aid of the Solidarity Income, aimed at the self-employed, who did not receive support and were not among the poorest population, but were affected.
For this, and with a limited budget, The Nation’s indebtedness was increased in order to continue emergency spending programs. Although these resources do not have to be paid in the short term, according to Minister Carrasquilla, it is necessary to look for their sources.
With data from the Ministry of Finance, the center for economic studies Anif estimates that this year the mitigation measures implemented will exceed 19 billion pesos (10.6 billion will go to Paef and Income Solidario), and the gross debt of the central government, as a proportion of GDP, will jump from 50.3 percent in 2019 to 66 percent in 2020, according to the Medium-Term Fiscal Framework of the Ministry of Finance.
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Meanwhile, tax collection between January and November had an annual decrease of 17 percent, reaching 102.4 billion pesos, according to statistics from Dian.
Even starting December, The International Monetary Fund (IMF) confirmed that the country has already received the 5.4 billion dollars under the flexible credit line for 17.6 billion dollars, to meet the needs of the balance of payments and to support the response to the pandemic.
In addition, according to Anif, before the COVID-19, Colombia had a structural fiscal deficit of at least two percentage points of gross domestic product (GDP), and the impact of this situation will take the shortfall by 2030 to a range between 8 and 10 percent of GDP, which will make necessary adjustments not only in spending, but also on the income side (taxes), where the country lags behind other countries.
With data from the Ministry of Finance and the Organization for Economic Cooperation and Development (OECD), Anif shows that while in Latin America tax collection as a percentage of GDP is 24 percent (taking data from Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru and Uruguay), the same level as in the United States, that of Colombia reaches 19 percent of GDP and in the OECD countries it is 34 percent.
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Previous work
Although the Government does not yet have a definitive text, as confirmed by EL TIEMPO, the preliminary analyzes are made to know where to look for collection, taking into account that, as Carrasquilla said, Colombia differs from several similar countries by having many exemptions taxes, some in corporate income taxes, others in personal income taxes, but most in VAT, “with a true argument, and that is that it is regressive tax.”
This because the poorest people pay a higher proportion of their income in VAT than the wealthiest and VAT affects them to a greater extentAn argument that “changes a lot” to the extent that VAT can be returned to the poorest.
Since August 18, the Committee of Experts has been working on five axes that are reviewed by 10 experts, five foreigners and five Government representatives, in five tables, each chaired by one of the foreign experts, with one meeting per month to prepare the inputs that are discussed in plenary sessions.
(Also read: Garnishing pension savings and 9 other ideas in this regard, in Congress)
The first table is in charge of reviewing the income tax of companies, analyzing sector exemptions; effects on efficiency, investment and economic growth; and the evaluation of deductions or income exempt from discounts associated with the tax.
For its part, the second is reviewing income taxes for individuals and dividends; and is focused on evaluating the progressivity associated with exempt income, discounts and household deductions, while looking at the effective tax rate and payroll taxes.
The third table is in charge of the incentives for the field and the non-income income; the fourth, issues related to VAT and special treatments in relation to this tax, while the fifth focuses on international trade, in particular the preferential treatment given to free zones, compared to other countries.
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And while the Committee of Experts studies these issues, figures from the Ministry of Finance taken by the center for economic studies show that from a level of 7.7 percent of GDP in 2015, tax exemptions reached 8.7 percent. of GDP in 2019 (91 billion pesos) and, of this total, 7.7 percentage points are in VAT, totaling 74 billion pesos each year, of which 61.2 billion pesos are represented in goods and services excluded.
Experts propose the routes to follow
For Horacio Ayala, former director of Dian, the VAT reforms should aim to stimulate the production and consumption of domestic raw materials. “I think that the VAT refunds in the fund are subsidies, which deserve a greater weight. It is justified to keep tax-free basic foods without processes and medicines. From then on it is difficult to control”, He indicated.
For the expert, trade in processed goods and raw materials, in addition to non-essential services, are the sectors in which the VAT exemption is least reflected in job creation and growth.
(We recommend you read: The contributions and doubts of analysts and unions about the tax reform)
Mauricio Santamaría, president of the Anif economic studies center, believes that the reform should include four fundamental things: more people contributing income tax, each one according to their ability to pay; eliminate the vast majority of exemptions in both income and VAT; reduce parafiscals and strengthen green taxes.
The Fedesarrollo economic studies center, which starting the year will present a proposal for structural reform to the Government, points out that exemptions for companies, especially sectorial ones, must also surely be reviewed in order to have a simpler tax statute that is applied in a general way to all companies, and not like today, that each sector seems to have a particular tax status.
Luis Fernando Mejía, director of this institution, explains, for example, that today the industry and commerce tax (ICA) at the territorial level, which It is being discounted in its entirety against income tax since this year, it costs the Government more or less half a point of GDP, just over 5.28 trillion pesos.
(Also: Exemptions, the big focus for tax reform)
And in the income of natural persons, he warns that evasion and avoidance practices continue to cost the country billions, not only because labor informality means that very few people and companies pay taxes, but because there are still many people, especially the richest, that use mechanisms to avoid paying taxes.
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