Thursday, August 18, 2022

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Colombia’s new President Gustavo Petro and Colombia’s business trade associations are publicly endorsing broad goals for boosting economic growth, improving the lot of poorer populations, cutting income inequality and moving toward a “greener” future.

But the national tax proposal put forward by Petro and his Finance Minister this month ironically might only help the poor with two or three years of tax transfers, followed by years of economic stagnation caused by crushing tax burdens on most jobs generators, along with tax schemes that would only accelerate the destruction of fiscally crucial energy and mining industries.

In a speech last week to Colombia’s biggest national industrial-commercial trade association (the Medellin-born ANDI), President Petro outlined lofty-sounding goals for a Colombia that would disincentivize exports of oil and minerals, cut income inequality via higher taxes on individuals and companies (ironically hitting middle-class people making just US$2,500 per month), target unhealthy beverages and foods, and accelerate the move away from oil-and-gas and mining industries to “greener” schemes.

Yet all those goals could be achieved much-less-painfully -- and more practically -- with a gradualist, more market-based approach as favored by ANDI and many other business and consumer advocates.

That’s especially important given today’s painful inflation problems and Colombia’s relatively fragile attractiveness for both domestic and foreign jobs-creating investments. Boosting industrial/consumer/employee taxes now -- including a proposed doubling of taxes on investors -- on the very sectors generating most jobs, tax revenues and economic growth inevitably would turn counter-productive, as most economic experts here publicly acknowledge.

What’s more, Colombia already has been on a decades-long, gradual pathway of improving the lot of poorer populations and cutting inequality via dramatic improvements in free or low-cost health care, free public education, low-cost job training programs, expanded social welfare payments, food and medicine subsidies, retirement subsidies, free vaccination campaigns, vastly improved public utilities, dramatically improved highway infrastructure, diminished levels of armed conflict with guerilla groups, and a total avoidance of violent foreign entanglements.

Colombia presumably could continue on this gradualist approach, perhaps with a scaled-down version of Petro’s tax proposal. For example: it’s possible to imagine new incentives for alternative production and consumption of “greener” or “healthier” products and services via tax deductions offered to producers and consumers of some of today’s less-friendly products or services -- just as can be seen many in tax policies in North America and Europe, for example.

In his closing speech to the ANDI national convention in Cartagena last week, ANDI President Bruce MacMaster publicly praised President Petro for publicly sharing his vision and hopes for Colombia’s future with ANDI’s members.

“Opportunities and employment are definitely the best way, the safest, the most concrete, the most sustainable and the most proven to be able to overcome the limitations in terms of poverty that any society has,” MacMaster said, speaking directly to President Petro as well as to the assembled, standing-room-only crowd.

“And we are convinced that we are a fundamental part of that pathway, as the companies of Colombia -- from the micro to the large -- are the best and largest generators of employment.

“[President Petro] said it here, as also said in your inauguration speech, that we have to generate wealth, production and opportunities, that if we do not generate wealth, then we do not have anything to distribute, and wealth must be capable of meeting social needs.

“Competitiveness is extremely important and, of course, involves generating a friendly, reasonable and stable environment for the business world. And in that we are completely willing to read the signs that are given to us.

“And I want to make a special mention of conversations we had with your Minister of Finance in which we talked, for example, about the opportunity that Colombia has to be highly competitive in environmental matters, given the capacity we have to produce in our country, with a carbon footprint much lower than in the rest of the world, a small fraction of what it takes to produce in China. We are sure that we can turn this into a great competitive advantage for the country,” MacMaster concluded.

Medellin-based highway construction giant Construcciones El Condor on August 12 reported a first half (1H) 2022 accounting net loss of COP$17.5 billion (US$4.2 million).

“The results recognized by the equity method and the unrealized net-exchange difference generated a net result of negative COP$17.5 billion, which led the company to present a net margin of minus-4.98%,” according to El Condor.

“These methods have accounting effects, but do not have an impact on the company’s cash. If these effects are discounted, then net income was COP$9.57 billion (US$2.3 million) with a net margin of 2.72%.

“This effect will continue for several periods while the highway concessions begin to generate accounting profit, a behavior that obeys the normal cycle of concessions due to the nature of project finance,” the company explained. “The foregoing does not mean that the concessions do not meet their profit margins, but given the nature of project finance, this builds financially throughout the life of the contract.”

During 1H 2022, income from ordinary activities totaled COP$351 billion (US$84 million), up 25.34% year-on-year, according to El Condor.

“The increase reflects the upward curve of higher levels of work execution in the company’s main contracts: EPC [engineering, procurement, construction] with the Rio Magdalena highway, the Ruta al Mar highway and the Pacífico 3 highway concessions, and the Tunel del Toyo public-works contract [in Antioquia] with Invias,” according to El Condor.

Operating costs rose 16% year-on-year, to COP$302 billion (US$72.5 million), while gross profit came-in at COP$49 billion (US$11.7 million), “equivalent to a gross margin of 13.99%.” Administrative expenses reached 4.34% of revenues.

Operating profit came-in at COP$42 billion (US$10 million) equivalent to 11.92% of revenues, while earnings before interest, taxes, depreciation and amortization (EBITDA) hit COP$66.7 billion (US$16 million), with EBITDA margin at 18.98%, up from 14.92% in 1H 2021.

As of June 2022, El Condor reported total assets of COP$2.47 trillion (US$593 million), while liabilities closed at COP$1.43 trillion (US$343 million).

The company’s current ratio is stated at 0.88-times, decreasing compared to December 2021, when the ratio was at 1.38-times. “The decrease is explained by the reclassification to non-current liabilities of the structured credit that matures in June 2023 and has as a source of payment related to the investment portfolio,” the company added.

As of June 2022, construction backlog -- the balance of works contracted and to be executed -- was COP$3.26 trillion (US$783 million), according to El Condor.

Enka 1H 2022 Net Income Drops 31% Year-on-Year

Saturday, 13 August 2022 16:39 Written by

Medellin-based textiles and plastics/polyester recycling specialist Enka announced August 12 that its first-half (1H) 2022 net income fell 31% year-on-year, to COP$20.3 billion (US$4.87 million).

The company blamed the decline on “lower operating income, foreign exchange differences and an increase in financial expenses as a result of increased indebtedness.”

Earnings before interest, taxes, depreciation and amortization (EBITDA) for 1H 2022 dropped 12% year-on-year, to COP$33 billion (US$7.9 million), despite a 28% percent increase in operating income, hitting COP$310 billion (US$74 million).

Despite the declines, Enka stated that it is “maintaining adequate profit margins and low financial debt.”

“The investments made in the project for the new EKO-PET [plastic bottle recycling] plant amount to COP$84 billion [US$20 million], about 75% of total investment, advancing on schedule and estimated budgets.

“The new single-use plastics law [in Colombia] increases the collection goals for bottles of PET and promotes the use of EKO-PET resins in beverage containers, which further commits to the development of the circular economy in the country,” Enka added.

As for profits challenges this year, “as expected, Asia has managed to reduce its logistics costs and recover its presence in western markets. This contrasts with the strong impacts of the conflict in Ukraine over Europe, affecting production costs and the supply risk of our nylon chain.

“To mitigate this situation, the company decided to increase temporarily our inventories to ensure new supply, and develop Asian suppliers to diversify supply reliability and competitiveness,” according to Enka.

Operating income for 1H 2022 grew 29% year-on-year, to COP$310 billion (US$74 million), “as a result of the increase in international prices and a higher exchange rate, which compensates for a 2.7% decrease in the volume of sales of structural businesses and lower sales of virgin PET, whose production ended in the second quarter of 2022,” according to the company.

During 1H 2022, exports grew 30% year-on-year, to US$35 million, accounting for 45% of total income, “due mainly to the strong increase in international prices. The good performance of demand in Brazil has allowed us to increase our share of sales there to 19%,” according to Enka.

For Enka’s “green” recycled product lines, revenues rose 43% year-on-year, “mainly due to higher international prices that offset a 4% reduction in sales volume,” according to Enka.

“EKO-PET” sales (8,187 tons) decreased by 5% in tons, “mainly due to a lower conversion factor due to lower quality of some bottles and some maintenance during the period.”

“EKO-Fibras” (4,941 tons) decreased 4% “mainly in marketing, due to wholesale Asian competition. Exports of fibers produced for geotextiles offset lower local demand.”

“EKO-Polyolefins” (932 tons) increased by 14% “due to greater demand in the local market for various applications. Dow initiated orders for ‘Revoloop’ resin manufactured by Enka, with expectations of incremental sales during the second semester.”

Textile and Industrial Businesses

Excluding production of virgin PET, textile/industrial sales totaled COP$201 billion (US$48 million), up 32%, “as a result of higher international prices and the devaluation of the exchange rate, which offset a 6% decrease in volume,” according to Enka.

“Textile share of total sales ends at 65% and exports accounted for 62% of sales of the line. Virgin PET sales represented 4% of total sales. Industrial Yarns (6,541 tons) sales remain at levels similar to 2021. Major canvas sales displace some sales of Technical Yarn due to greater added value.”

Textile Filaments (3,931 tons) saw sales dip 3% “due to lower sales of nylon by Asian competition, partially offset by polyester filaments for the export market,” the company added.

Fabricato 2Q 2022 Net Income Best in Five Years

Saturday, 13 August 2022 15:35 Written by

Medellin-based textile giant Fabricato announced August 12 that its second quarter (2Q) 2022 net income hit COP$5.1 billion (US$1.22 million) – its best quarter in five years -- while first-half (1H) 2022 net income is up 110% year-on-year.

Sales during 2Q 2022 also hit levels not seen since 2013, at COP$235 billion (US$56.5 million), while 1H 2022 textile earnings before interest, taxes, depreciation and amortization (EBITDA) rose 42% year-on-year, to COP$31.4 billion (US$7.54 million) – a whopping 2,700% improvement over 1H 2020.

“Fabricato continues in the task of following the path of better results and it has been like this for the last two years,” according to the company.

“We also hope that the new national government will resolve the vicissitudes of textile-clothing policy so that Colombia can have more and better jobs in a sector capable of exploiting its advantages, having an integrated production chain from spinning to clothing.

“The textile offer that we have developed for the satisfaction of clients and consumers revives the Colombian textile industry with the consequent impact on the reactivation of our country,” while Fabricato’s separate real-estate business “is also developing and is generating the expected results,” the company added.

“The second quarter of 2022 maintained a positive trend of economic reactivation,” according to Fabricato. “It was lower than that registered in the first quarter, but it is growing compared to the same quarter of 2021.

“International logistics is still in the process of normalization. This has facilitated imports between January and June, which leads to a growth of 33% for the textile and clothing sector compared to the same period in 2021.

“Exports also had a positive performance, growing by 52% compared to of the same period of 2021. The denim-and-poplin segment is the one with the highest increase.

“The main markets for the exports of Fabricato during 2Q 2022 were Ecuador, with 48.3%, followed by Peru and Mexico, with 18.27% and 13% respectively.

“High volatility and uncertainty persist regarding the price and availability of the main raw materials. The raw material with greater volatility and greater impact on cost increases has been cotton, as its price ended on 2021 at US$1.10 per pound and closed on June 31 2022 at US$0.98.

“However, during the second quarter, cotton reached prices of US$1.46/pound, an increase of 32%. We achieved internal efficiencies by reducing the impact of this increase.”

Meanwhile, “we are focused on obtaining new clients in markets that we must attend, seeking to reach directly to manufacturers and micro/medium sub-distributors through a permanent service and supply strategy.

“The market maintains high product inventories, as a result of processes of supply by reactivation.

“We maintain a portfolio of products with permanent supply, with circular economy and sustainability approach. In addition, we accompany Colombian exporters with the supply of fabrics where the certificate-of-origin allows them to be competitive,” the company added.

“Natural fibers other than cotton are being ‘cottonized,’ which allows Fabricato to be at the forefront of product development with other natural fibers.

“’Cottonizing’ is an industry term that prepares natural fibers other than cotton to incorporate them into the production of fabrics, with sustainability and quality advantages,” the company explained.

Medellin-based paints, chemicals and hardware multinational Grupo Orbis – now a division of Netherlands-based AkzoNobel – on August 12 reported a first-half (1H) 2022 net profit of COP$19.3 billion (US$4.6 million), down from COP$22.9 billion (US$5.5 million) in 1H 2021.

Gross income was basically flat year-on-year, at COP$897 billion (US$215 million), according to earlier-published company statistics from 2021.

The Pintuco paints division reported a 28% year-on-year growth in sales, at COP$556 billion (US$133 million), while earnings before interest, taxes, depreciation and amortization (EBITDA) rose 35%, to COP$53 billion (US$12.7 million).

The “Mundial” home-and-garden division saw sales rise 17%, to COP$89 billion (US$21 million), while EBITDA grew 13%, to COP$1.5 billion (US$360,000), according to the company.

Meanwhile, the “Andercol” (Colombia) and “Poliquim” (Ecuador) chemicals division saw peso-denominated sales rise 54% year-on-year, to COP$340 billion (US$81.6 million) thanks to price increases. However, “increases in the prices of raw materials have not been fully transferred to the market -- in order to maintain competitiveness of our products -- slightly affecting gross profit,” according to Orbis.

“A strict control of expenses allows a good operating performance, obtaining an EBITDA of COP$24.6 billion [US$5.9 million], 80% more than the previous year,” while chemicals-division net profits rose 21% year-on-year, to COP$12 billion, (US$2.88 million) the company added.

Medellin-based multinational insurance, health care and asset-management group Grupo Sura announced August 12 that its second quarter (2Q) 2022 net income rose 30.7% year-on-year, to COP$603 billion (US$145 million) – its best quarterly performance in seven years.

Total revenues likewise rose 23%, to COP$7.5 trillion (US$1.8 billion), an all-time quarterly record, according to the company.

“This growth in revenues was mainly due to a positive level of performance with the insurance business, which produced a growth in written premiums of COP$1.6 trillion [US$384 million], offset by a drop in fee and commission income, corresponding mainly to the mandatory pension business in Mexico, which fell by COP$38 billion [US$9.1 million], a decline of 4.7% compared to the same quarter last year,” according to Sura

“Investment income increased by COP$340.7 billion [US$81.8 million] compared to the second quarter last year, representing a growth of 84.5%. These results are largely accounted for by the positive levels of performance recorded by the Suramericana portfolios, where inflationary pressures and rising interest rates throughout the region continue to produce higher yields in the Chilean, Colombian and Brazilian portfolios,” the company added.

However, revenues from Sura AM’s legal reserves “continued to be affected by the losses in value sustained on different financial markets throughout the region,” the company added.

Revenues from Sura’s stock holdings in Bancolombia, Nutresa and Grupo Argos generated a 61% year-on-year gain in 2Q 2022, netting an extra COP$397 billion (US$95 million), according to the company.

Retained insurance claims rose 25% year-on-year, by COP$811 billion (US$195 million), according to the company.

“The claims rate continued to be affected by increased average costs corresponding to the [vehicle insurance claims] in the case of Suramericana as well as increases in the health care division due to a change in the mix, where the mandatory health care subsidiary (EPS) has a greater weighting, partially mitigated by a drop of COP$668 billion [US$160 million] in the claims relating to Covid compared to the second quarter last year,” according to the company.

While operating expenses rose 17.5% year-on-year, that was 5.5% lower than the increase in the company’s total revenues, according to Sura.

Grupo Argos 2Q Net Income Rises 5% Year-on-Year

Saturday, 13 August 2022 09:38 Written by

Medellin-based multinational cement, electric power, highways/airport concessionaire and real-estate giant Grupo Argos announced August 12 that its second quarter (2Q) consolidated net income rose 5% year-on-year, to COP$411 billion (US$98.7 million).

Revenues jumped 46% year-on-year, to COP$5.9 trillion (US$1.4 billion), while earnings before interest, taxes, depreciation and amortization (EBITDA) rose 7%, to COP$1.39 trillion (US$334 million).

The Cementos Argos division produced the highest revenues in the group, at COP$5.4 trillion (US$1.3 billion), followed by the Celsia electric power division (COP$2.5 trillion/US$600 million), the highway/airport concessions businesses (COP$921 billion/US$221 million) and finally the Pactia real estate joint venture (COP$159 billion/US$38 million).

“Increased revenue from financial activity during 2Q 2022 is mainly explained by good business performance and by non-recurring revenues for Grupo Argos from sales and contributions to the roadway division (FCP Odinsa Vías),” according to the company.

On the other hand, operating-cost-hikes pinched results, “especially in the cement business where the cost of fuel increased substantially,” the company added.

The new “FCP Odinsa Vias” 50-50 joint venture with Macquarie Asset Management is now operating major highway concessions in Colombia, including “Autopistas del Café,” “Malla Vial del Meta,” “Pacífico 2” and “Túnel Aburrá Oriente.”

The new joint-venture will continue projects including expansion of the existing “Túnel de Oriente” highway-tunnel project linking Medellin eastward to the Jose Maria Cordova (JMC) airport in Rionegro, Antioquia, as well as the “Perimetral de la Sabana” highway in Cundinamarca and the “Conexión Centro” highway in Colombia’s southwest coffee-growing region.

“Divestment of 50% of our share in the roadway concessions and the subsequent incorporation of ‘FCP Odinsa Vías’ give rise to certain accounting changes for Odinsa, which come into effect as of June [2022],” the company explained.

“These changes imply deconsolidation of the Autopistas del Café, Malla Vial del Meta, and Túnel Aburrá Oriente concessions and consortiums, which will now each have a single entry in Odinsa’s financial statements as a joint business under the equity method,” the company added.

Medellin-based multinational banking giant Bancolombia announced August 9 that its second quarter (2Q) 2022 net income rose 2.76% year-on-year, to COP$1.73 trillion (US$405 million).

Gross loans totaled COP$243 trillion (US$56.8 billion), up 19.4% year-on-year. “When excluding the foreign-exchange effect, the increase during the last twelve months was 15.3%,” according to the company.

Commercial loans grew 18.8% while consumer loans grew 23.5%, according to the company.

“Net interest income before provisions increased 16.6% and totaled COP$4.3 trillion [US$1 billion],” according to Bancolombia.

“Net interest margin expanded from 6.0% in 1Q 2022 to 6.7% in 2Q 2022. This performance is mainly driven by the loan portfolio growth of 9.3% in the latest quarter and loan portfolio repricing as an effect of the contractionary monetary policy in Colombia.”

Among the loan portfolios,”30-day past due loans stood at 3.86% and 90-day past due loans at 2.72%. Total provision charges, net for 2Q 2022, was COP$613 billion [US$143 million], which indicates a lower release compared to 1Q 2022 and higher provisions in the consumer and commercial portfolio in line with the growth of the loan book,” the company added.

“Basic solvency stood at 10.28% and the total consolidated solvency ratio was 12.93% for 2Q 2022, decreasing mainly because of the loan dynamism and the depreciation effect, but widely exceeding the minimum regulatory requirements.”

As for its digital banking segment, “Bancolombia shows a positive trend in line with 2021 results. As of June 2022, the bank has 7 million active digital customers in the retail app, as well as 19.3 million accounts in its financial inclusion platforms: 6.3 million users in ‘Bancolombia a la Mano’ and 13 million in ‘Nequi,’” the company explained.

“During the second quarter 2022, the Colombian peso depreciated 10.5% against the US dollar and has depreciated 10.7% in the last 12 months. The average exchange rate was 0.1% higher in 2Q 2022 versus 1Q 2022, and 7.9% higher in the last 12 months.

“During the last 12 months peso-denominated loans grew 16.9% and the dollar-denominated loans (expressed in US dollars) grew 12.4%,” the company added.

Operations at its “Banco Agricola” subsidiary in El Salvador, “Banistmo” in Panama and “BAM” in Guatemala represented 27.5% of total gross loans for 2Q 2022.

“Likewise, the gross loans denominated in currencies other than COP -- generated by operations in Central America, the international operation of Bancolombia Panamá, Puerto Rico and the US dollar-denominated loans in Colombia -- accounted for 35.4% of the portfolio, up 16.2% (when expressed in COP) as well as 5.2% as expressed in US dollars,” the company added.

“During 2Q 2022, the loan portfolio at a consolidated level continues with good dynamism in all geographies. Growth in commercial and consumer markets are remarkable. Banco Agricola reported the highest quarterly growth (6.5% when measured in US dollars), mainly driven by the commercial portfolio, which grew 11.2% and reached 45.3% of the total loan portfolio.

“Consumer loans grew 3.6% in the quarter, but slightly declined to 40.4% in terms of loan book share compared to 1Q 2022. Banco Agricola is closely followed by the Colombian operation, which presents an increase of 6.4% in the loan portfolio for 2Q 2022, driven by commercial and consumer.

“Banco Agromercantil reports a stable performance across all loan portfolio segments for 2Q 2022, growing at 1.9% consolidated in US dollars. The consumer portfolio continues increasing its loan book share, reaching 16.8% for this quarter, in line with the good performance experienced in 2021.

“Banistmo grew 1.8% (measured in US dollars) in the loan book during the quarter, basically due to the positive dynamics of the commercial portfolio, which grew 3.6% for the quarter and continues to be the largest share in the credit portfolio,” the company added.

Medellin-based multinational cement/concrete giant Cementos Argos announced August 8 that its second quarter (2Q) 2022 net income fell 97% year-on-year, to COP$5 billion (US$1.15 million).

“Net income decreased due to non-recurring operations of asset sales that were reflected in the results of the second quarter of 2021,” according to the company.

However, revenues jumped to an all-time quarterly high of COP$2.8 trillion (US$648 million), up 15% year-on-year.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) rose 2.6%, to COP$525 billion (US$121 million), according to the company.

“Ready-mix volumes were favored by solid sales dynamics, especially in the United States and Colombia,” according to the company. “Record revenues were mainly leveraged by the company's commercial strategy and by the higher volumes.”

The company also cited “stable operating results in an environment of high-cost inflation, thanks to the success of its commercial strategy in all geographies, the flexibility of its fuel matrix and the partial hedging of fuel prices.

As for its efforts to cut “global warming” emissions, “the company began a pilot test for the use of calcined clay in the United States and expects to reach production of 3 million tons of clay per year in all of its geographies by 2030, which translates into the production of green cement and concrete,” according to Argos.

Colombia Results

In Colombia, “strong market dynamics continued during the second quarter of the year were supported by the retail segment, residential construction and infrastructure projects,” according to Argos

As a result, Colombia revenues grew 27.1% year-on-year, to COP$678 billion (US$157 million), while adjusted EBITDA increased 12.7%, to COP$136 billion (US$31 million).

“Continuing with the positive performance, concrete sales rose 25.1% and reached 656,000 cubic meters, cement sales increased 13.3%, for a total of 1.5 million tons shipped. Housing sales and the start of residential projects continue to be a support of the market. In terms of infrastructure, projects such as the Bogotá Metro and 5G [fifth-generation highway construction] will bring significant demand in the coming years,” the company added.

USA Results

USA revenues rose 7.5% year-on-year, to US$416 million, while adjusted EBITDA “remained stable at US$75 million, achieved in part by the US$11 million in savings derived from the fuels hedging strategy.”

As for sales volumes, “the company experienced strong demand across most of its operations. Therefore, dispatches of ready-mix rose 6.4% and totaled 1.2 million cubic meters, as did cement dispatches, which also increased 6.4% and totaled 1.7 million tons,” according to Argos.

Caribbean and Central America (CCA) Region

For the CCA region, 2Q 2022 revenues were US$138 million, while adjusted EBITDA fell 18.8% year-on-year, at US$32 million, “affected by the combination of lower volumes in Honduras and Haiti and the already known inflationary pressures,” according to Argos.

“In this region, shipments of concrete were positive, increasing 58.9% and stood at 71,000 cubic meters. For its part, cement volumes reached 1 million tons, with an improvement in those of the local market with respect to the first quarter of the year, but a lower dynamic on the trading business, which resulted in a decrease in shipments of 30% cement. If this line is excluded, cement volumes fell 4.7%.”

Colombia’s new Finance Minster Jose Antonio Campo on August 8 unveiled a 130-page tax proposal to the national Congress -- aiming to boost tax collections by COP$25 trillion (US$5.8 billion) next year, then gradually increasing each of the following three years, hitting COP$50 trillion (US$11.58 billion) by 2026.

The proposed scheme generally follows promises made by Colombia’s newly sworn-in President Gustavo Petro to boost taxes on wealthier individuals and corporations, as well as producers of hydrocarbons and minerals (mainly oil, gas, coal and gold), new taxes on unhealthy sugary drinks and foods, on waste plastics, on profitable stock dividends, and reductions in many current tax exemptions.

If approved by Congress, the new scheme aims to slash income inequality and drastically reduce poverty levels at a rate nine-times that of prior tax-and-spending reforms over the past 14 years, according to Campo.

“The progress that the country has had in terms of health and education coverage, among others, must be maintained and accelerated to heal a deteriorated social fabric,” Campo states in the tax proposal.

“This tax reform project aims to advance fundamentally in two dimensions. First, by reducing the inequitable exemptions enjoyed by individuals with higher incomes and some companies, as well as closing avenues for tax evasion and avoidance,” he added.

A new “wealth tax” (patrimony) --considered by many nations including the U.S. as counter-productive -- would hit people with liquid assets exceeding COP$3 billion (US$695,000), generating about COP$2.66 trillion (US$616 million ) in extra revenues next year. The principal residence would be excluded from the “patrimony” calculation, but second-homes and vacation-homes would be included.

Workers and business owners with incomes exceeding COP$10 million (US$2,315) monthly would be hit by higher income taxes, generating an extra COP$5.45 trillion (US$1.26 billion) in revenues in 2023.

Higher corporate income taxes would bring-in an extra COP$5.1 trillion (US$1.18 billion) next year, while higher taxes on hydrocarbons and minerals (including gold) would bring-in another COP$7 trillion (US$1.6 billion) extra next year.

New carbon taxes (the CO2 emitted by burning hydrocarbons) would net another COP$2.5 trillion (US$579 million), while taxes on sugary drinks and high-sugar-content processed foods would add another COP$2.2 trillion (US$510 million) in new revenue, according to the proposal.

While higher taxes on higher-wage workers and higher-income business people would dampen their spending, transfers of these higher taxes to poorer people would result an a “marginally positive” boost to gross domestic product (GDP) “in the coming years,” according to Campo.

“Distortions that could derive from the increase in effective tax burdens would be mitigated by the positive effects of the use of these resources in greater transfers to households of low income and an increase in public investment,” he claimed.

As for the net impact on poorer populations, simulation-studies indicate that “the gain in welfare of the first four years -- defined as the sum of the utilities for each year, brought to present value -- would be equivalent to increasing the current consumption of these poorer households by 7.5%.

“In contrast, this reform would decrease the welfare of higher-income households, on account of the higher tax burden they would face, although the effects would be minor compared to the gain in well-being of lower-income households.”

Meanwhile, “the incidence of monetary poverty would be reduced by 3.9 percentage-points, reflecting a fall of 10% in the total population living in poverty, while extreme poverty would decrease by 4 percentage points, which would represent a percentage decrease of 32.4% of the population living in extreme poverty in 2021,” according to the proposal.

Meanwhile, the tax-revenue transfers to poorer populations would cut the current “Gini” index of inequality by “nine times the average annual reduction of the last 14 years,” he said.

Colombia Former VP German Vargas Lleras Responds

In an opinion column published in Colombia’s biggest daily newspaper (El Tiempo), former Colombia Vice-President German Vargas Lleras sees serious issues with certain parts of the proposed tax reform.

“I am concerned that with the introduction of new taxes and the increase in some rates we will continue to deepen our loss of competitiveness, the outflow of capital will continue and it will not be possible to attract new investment, either local or foreign,” Vargas Lleras states.

“I had the opportunity to present to the appointed Finance Minister my concern about the return of non-technical taxes such as wealth. To this is added the increase in the tax on dividends and occasional profits by 100% and the dismantling of the discount in the ICA [industrial/commercial tax deductions] and the creation of new taxes such as those proposed for the mining-energy sectors, among others . . .

“How are we going to guarantee our energy security? With what does the [Petro government] think to replace the enormous income [from state oil company Ecopetrol] that just in this first half of 2022 represented US$16 billion [in government revenues] and is 54% of all our exports?”

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About Medellin Herald

Medellin Herald is a locally produced, English-language news and advisory service uniquely focused upon a more-mature audience of visitors, investors, conference and trade-show attendees, property buyers, expats, retirees, volunteers and nature lovers.

U.S. native Roberto Peckham, who founded Medellin Herald in 2015, has been residing in metro Medellin since 2005 and has traveled regularly and extensively throughout Colombia since 1981.

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  • Medellin, Antioquia, Colombia

Medellín Photo Galery

Medellin, contrasting colors and styles by Gabriel Buitrago