The senate approved the tax reform on 11 December by 61 votes to 20 after a long debate. The bill had been altered to reflect an eleventh-hour compromise thrashed out the day before by finance ministry officials and representatives of the national trade council (CGN), which comprises 21 business organisations, to help smooth its passage through the senate. The standout concession by the government was a promise to phase out the wealth tax. The wealth tax will impact anyone with liquid assets worth more than Col$1bn (US$419,800) to a maximum annual rate of 1.15% in 2015, 1% in 2016 and 0.4% in 2017, before expiring in 2018.
The wealth tax had been the major bone of contention with business leaders, who argued, among other things, that it would deter investment. In exchange they agreed to accept a gradual increase in a surcharge on a tax on profits (CREE in the Spanish acronym) above Col$800m (US$332,000) of 5% in 2015, 6% in 2016, 8% in 2017 and 9% in 2018. They also accepted the extension of the transaction tax dubbed ‘cuatro por mil’ (which sees all customers pay four pesos for each 1,000-peso bank transaction) for a further four years.
The reform also includes a 10% surcharge for all those omitting to declare foreign assets of more than Col$8bn (US$3.9m) and a four-year jail sentence, as well as an initiative to combat tax evasion which the government hopes will net Col$20 trillion (US$9.95bn) between 2015 and 2018.
“The government wanted to cook the reform in a microwave. This will be damaging for the private sector and for job creation,” Senator Iván Duque of the right-wing Centro Democrático, led by Senator Álvaro Uribe, said. Duque added that it was “a myth that the reform only affects a minority, companies”. Uribe himself said that the fact that the business sector had “reluctantly” agreed to the tax reform did not make it good. “The problem is not the members of the public with Col$1bn assets but those with exorbitant sums,” Iván Cepeda, of the left-wing Polo Democrático Alternativo (PDA), said.
More damagingly for the government, senators from within the ruling coalition also criticised what they described as piecemeal tax changes to meet immediate revenue needs when more long-term structural changes were required. “The government should pass a reform for the next 20 years and not a fragile little reform each year,” Senator Juan Carlos Restrepo, of Cambio Radical (CR), said. David Barguil, president of the Partido Conservador (PC), also criticised the fact that the reform did not get to the root of the problems in the tax system.
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