Colombia’s Finance Minister Proposes COP$11 Trillion Corporate Tax Hike to Boost Subsidies for Poor, Workers, Youths, Businesses Hurt by Covid-19 Crisis

Colombia Finance Minister José Manuel Restrepo on July 13 unveiled a COP$11 trillion (US$2.9 billion) tax hike on wealthier corporations in order to expand and continue subsidies to especially vulnerable populations economically slammed by the Covid-19 crisis.

The proposal DOES NOT include any new taxes on middle-class people, nor does it boost the existing value-added sales tax (“IVA” in Spanish initials) — which in any case mainly hits higher-income people rather than the poor. But it will boost the corporate tax rate to 35% and extend financial-sector income-tax surcharges to 2025.

The bill comes on the heels of two months of consultations with representatives of understandably frustrated social groups including poor people, workers, small-business people, students as well as Colombia’s leading business trade associations — including ANDI (originally founded in Medellin).

It also comes on the heels of financially punishing Wall Street debt-ratings downgrades on government and corporations, which unfortunately cripple the government’s ability to finance subsidies to poor people, the working classes, small business and huge numbers of unemployed young people — all slammed by the Covid-19 crisis.

Commenting on the new proposal, ANDI President Bruce MacMaster stated: “I must say that the business sector is going to support this effort. And it will do so with a patriotic, supportive, important, developed spirit . . . [We need to] generate economic reactivation, to generate reduction in unemployment, to generate more opportunities for Colombians and to address this [massive fiscal deficit] situation,” he added.

The bill would extend and expand existing Covid-19-triggered subsidy programs including the “Solidarity Income” subsidy (through 2022) and the “Payroll Subsidy” (PAEF) program (through December 2021), according to the Finance Minister.

The Solidarity Income subsidy expansion “would allow more than 731,000 Colombians living in extreme poverty who today do not receive any benefits from the state to start doing so for the first time. With this, the program would reach a total of 3.3 million households,” Minister Restrepo explained.

Cost of the Solidarity Income subsidy would hit COP$2.31 trillion (US$608 million) in 2021 and another COP$6.59 trillion (US$1.7 billion) in 2022, he said.

Meanwhile, extension of the PAEF payroll subsidy for the second semester of 2021 “would support about 459,000 employees through a scheme that encourages the hiring of young people between 18 and 28 years old, along with the rest of the population with incomes of up to three minimum wages,” he added. That cost will total COP$1.06 trillion (US$279 million).

“We will focus the program on small companies and will include individuals with businesses that employ at least two people,” Restrepo explained. As a result, another 55,000 employers are expected to apply for payroll subsidies, corresponding to 400,000 employees.

Meanwhile, the new tax bill would grant free tuition at public universities and trade schools for 695,000 students in the lower-income “1, 2 and 3” strata, along with “incentives and better conditions to users of ‘Icetex’ educational credits,” he said.

“With these measures and the social programs in force, the national government will reach more than 25 million Colombians who will benefit” via subsidies totaling COP$8.8 trillion (US$2.3 billion) in 2021 and another COP$8 trillion (US$2.1 billion) in 2022, he said.

The proposal also contains a government-austerity plan that aims to generate recurring savings of COP$1.9 trillion (US$500 million) between 2022 and 2032, on average. This includes a restriction starting in 2023 on personnel expenses along with reductions in travel expenses, vehicle expenses and mobile-phone expenses, he said.

Transfers of federal revenues to Colombia’s 34 departments also would be trimmed “without affecting those mandated by the Constitution, such as Social Security, public universities” and other legally mandated payments, he said.

Another provision aiming to crack down on tax evaders would boost revenues by some $2.7 trillion (US$710 million), he added. In addition, a new “georeferenced information system” would aim to “detect the real value of declared properties and allow income tax to be invoiced based on information from the electronic invoice and information reported by third parties,” according to the Minister.

Meanwhile, the existing “ICA” tax on corporations would be trimmed by 50%, but an income-tax surcharge on Colombia’s financial sector would be extended until 2025.

Once including all the new tax provisions, austerity measures and anti-evasion efforts, Colombia’s tax revenues would be boosted by COP$15.2 trillion (US$4 billion), the Minister added.