Weekly Report - 29 July 2003

Finance minister Alberto Carrasquilla announced last week that the government will not seek to introduce or raise the rate of the value-added tax on basic goods until 2005. 

The government had originally planned to introduce new taxes and higher rates in 2004 in order to help close its large fiscal deficit, which risks exceeding the 2.1% of GDP target agreed with the IMF. 

Thus, the plan to introduce a 2% value-added tax on all previously exempt components of the basic food basket goes back to its originally scheduled date: 2005. What is unclear is if at that time the government will also raise the rate on the components that are currently taxed. 

Carrasquilla said President Alvaro Uribe had decided that it would be wiser to delay the application of the new measure given the current uncertain economic climate. What may have helped reach this decision is the fact that the public in general is distinctly less enthusiastic about the government's management of the economy than about its handling of the internal war (see main story, above). 

The decision was immediately welcomed by business leaders, and particularly by the agricultural sector, which had feared the effect of the new tax on their business and had asked for more time to prepare for the changes. 

Carrasquilla said that the government would instead focus on cutting public spending still further and would boost income by strengthening its tax-collection procedures to catch tax cheats. 

Colombia is currently facing an estimated revenue shortfall of Col$3.7tn (US$1.28bn) in 2004, but the government has ruled out raising the level of income tax, introducing a new capital gains tax, or the issuance of compulsory bonds. 

The government will, however, press ahead with the introduction of a new tax on pensions, which is expected to raise up to Col$800bn.