Weekly Report - 27 November 2014 (WR-14-47)

COLOMBIA| Tax reform bill formally enters congress. On 24 November Colombia’s national congress announced that it would start debating a proposed tax reform bill presented by the government led by President Juan Manuel Santos. The proposed tax reform, first unveiled by Finance Minister Mauricio Cárdenas last month, is proving highly controversial. Not least because after President Santos ratified Cárdenas in his post following his re-election in June, Cárdenas said that there was no need for a comprehensive tax reform ahead of the start of a new four-year presidential term but only for “minor adjustments”. However, after the Santos government presented a Col$216.2trn (US$99bn) draft 2015 budget to congress, Cárdenas announced that the government would have to find an additional Col$12.5trn (US$5.72bn) in tax revenues next year in order to finance the budget, that assigns significant funds to the various social and economic development programmes promoted by the Santos government in support of the peace negotiations that it is currently conducting with the country’s leftist guerrillas. Cárdenas said that as well as extending the highly unpopular ‘4 por mil’ financial transactions tax (a temporary measure first introduced in 1998) for another four years [WR-13-50], the government would also look at introducing a new form of ‘wealth tax’ (applicable to individuals or firms that have over Col$1bn [US$479.00] in liquid assets). All of this was heavily criticised by the local private sector, which complained that the Santos government was reneging on its promises to eliminate the ‘4 por mil’ and not to increase the tax burden on the sector, affecting its competitiveness. Such were the private sector complaints that Cárdenas met various sector representatives to discuss the proposals before submitting them to congress. After weeks of discussions, by mid-November Cárdenas announced changes to the original proposal which would make the new wealth tax a temporary measure to be replaced with gradual and progressive increases to the ‘business income tax for equality’ (CREE, paid on top of the 25% normal income tax rate) over the next four years. However the private sector has also rejected the new proposal, arguing that the increased tax burden (which according to its calculations will rise from 1.35% of GDP to 1.51%) on the sector will deter investment and affect productivity levels at a time of economic uncertainty in the region. As Javier Díaz, the president of the Consejo Gremial Nacional (CGN), a private sector lobby group, has said “We are concerned because as we increase taxes, Peru is lowering them to around 26% for income tax; while in Colombia we are looking at 43%”.

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