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Taxes 9

Written by Published in Taxes September 14 2021 0

Colombia President Ivan Duque today (September 14) signed far-reaching tax and social-benefits legislation that promises to benefit more than 29 million poor- and middle-class Colombians -- while also putting a heavier tax burden on wealthier individuals and corporations.

Not only is the legislation progressive -- contradicting some biased media reports and some blowhards that paint Duque as a “right-wing” President -- but also it’s remarkable that the bill passed both houses of Congress in the final months of a four-year presidential term. Getting anything done legislatively when Colombian presidents are leaving soon is almost unheard-of in Colombian politics.

The new law also “makes Colombia the first country in the hemisphere to carry out a social and fiscal reform in the midst of the pandemic,” according to Duque.

The bill aims to raise COP$15.2 trillion (US$3.97 billion) by raising the corporate income tax rate to 35%, cracking down on tax evasion, cutting non-mandated federal expenses, and continuing the existing financial-transfers tax and the ICA tax.

As for social benefits, the bill gives all students in lower-income strata (1, 2 and 3) free tuition at all public schools; extends the “solidarity income” subsidy for hiring young people; refunds the 19% value-added tax (VAT) to poorer people; extends the “emergency basic income” subsidy -- created at the start of the Covid-19 pandemic -- through 2022, and continues a variety of income subsidies for senior citizens, young people and poor families.

“Thanks to the application of the law, extreme poverty levels will be reduced from 15.1% in 2020 to 6.7% in 2022,” according to Duque. “Moderate poverty levels will also decrease from 42.5% in 2020 to 34.3% in 2022. In total, 4.1 million households will benefit from Solidarity Income, equivalent to 14.3 million people,” he added.

The employment subsidies included in the bill are projected to recover around 1 million jobs and help slash unemployment to levels prior to the pandemic outbreak.

“Every [temporary subsidy measure] that arose in the midst of the [Covid-19] complexities today becomes state policy thanks to the assistance of the political parties, unions, youth, governors and mayors,” Duque added, citing the broad coalitions that backed the new legislation.

“The Formal Employment Support Program [PAEF in Spanish initials] is historic for what it represents. This year, when we see the reactivation [of the national economy], we are not going to put it aside. On the contrary, we know that there are companies that are still affected and there are sectors that are just getting ahead and, therefore, retroactively, from May this year to December this year, the PAEF has also become an effective response to the needs of the Colombian people.

“And new elements are added: support for women, support for the population with disabilities, support, also, for those who were victims of the [‘Paro National’ riots and] blockades, those who wanted to destroy and who, too, were affected in their lives, in their income. They, too, are answered,” Duque added.

“But let it  also be clear: The solution has not been at the cost of taking away competitiveness from the private sector, but of maintaining it -- and I say this because of the following: this reform maintains the 100% VAT discount on capital goods. This reform maintains the elimination of presumptive income [from tax]. Because even with the increase in the nominal [corporate tax] rate [to 35%], it is still a rate substantially lower than the one we had in 2018 and, also, because the ICA tax deduction is left at 50%.

“In other words, the private sector contributes, but maintains the competitiveness gained in these years, to continue making Colombia an attractive place for foreign investment,” Duque concluded.


Written by Published in Taxes July 14 2021 0

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.


Written by Published in Taxes December 28 2019 0

Colombia President Ivan Duque on December 27 signed into law a new national tax bill that mainly helps lower-income people and incentivizes job growth in legal industries.

The new law “seeks to continue promoting economic development and creates the basis for reducing inequality and closing income gaps in the country,” according to the official press statement following the President’s signing.

The measure would generate an estimated COP$13.5 trillion (US$4.1 billion) in new revenue in 2020, via income taxes on people with relatively high incomes; a surcharge on the financial system; and a multi-phase VAT (value-added tax) on beer and soft drinks, according to the summary.

“Normalization” measures in the bill would generate COP$5.3 trillion (US$1.6 billion); while economic growth stimulation measures would result in another COP$3.2 trillion (US$971 million). Furthermore, a new electronic tax-billing-and-collection system is expected to raise another COP$5 trillion (US$1.5 billion), according to the summary.

The full text of the new law (in the original Spanish) is available here: https://dapre.presidencia.gov.co/normativa/normativa/LEY%202010%20DEL%2027%20DE%20DICIEMBRE%20DE%202019.pdf

“This legislation links social programs such as the VAT refund for 2.8 million low-income households, plus three days without VAT per year, the reduction in [individual] health [insurance] contributions from 12% to 4% for pensioners and vulnerable populations, plus incentives to companies that create jobs for young people between 18 and 28 years.”

“This reform will allow us to continue increasing resources for education, for health, for household improvements, and for bringing clean drinking water supplies to the most vulnerable areas of our country,” added President Duque.

The measure, officially dubbed the “Economic Growth Law,” contains measures that will continue to boost the growth of Colombia's Gross Domestic Product (GDP) and foreign direct investment (FDI), hence creating more jobs in the “formal” (legal, taxable) economic sectors.

The new law also establishes income-tax benefits for large, medium, small and micro enterprises, as well as VAT discounts for imported capital goods “in order to reduce costs so that the business sector is modernized more quickly and becomes more cost-competitive,” according to the press summary.

The law also includes a mechanism by which compliance with the tax obligations of micro- and small businesses are simplified.

Another provision includes nearly COP$2 trillion (US$607 million) received from financial-sector taxes for upgrading rural, tertiary roads -- in order to improve logistics in many of Colombia’s remotest regions, as noted by the Transport Ministry.


Written by Published in Taxes December 20 2018 0

Colombia President Ivan Duque and Minister of Finance Alberto Carrasquilla on December 19 both hailed final votes in the Colombian House and Senate to approve a revised tax package for 2019.

“The approved bill retains the initial spirit of protecting the most vulnerable population of the country and strengthening the collection through the taxation of the population with the highest income,” according to a Finance Ministry press statement.

The new law “aims to recover investment in the country and allow the economy to grow above 4% [annually], removing the burden on the generators of employment and encouraging investment,” the Ministry added.

Unlike the original proposal, the new law won’t extend the current 19% value-added tax (VAT) on many products to the basic “food·basket” that includes what most Colombians buy every day. However, beer and carbonated soft-drinks – previously exempt from IVA -- will now be hit by that tax.

On the other hand, neither pensions nor certain service contracts will be taxed, contrary to the original tax proposal.

Meanwhile, the new law strengthens the hand of the national tax-collection agency (DIAN) in the fight against tax evasion, including possible prison sentences for evaders.

Responding to a proposal from President  Duque, “tax conditions were created so that companies related to the ‘orange’ economy [high-tech, environmentally ‘green’] could develop, benefiting cultural and technological ventures that generate added value to economic growth,” the Ministry noted.

According to President Duque, the new law “promotes entrepreneurship, simplifying and facilitating the work of micro-, small, medium and large companies, which currently face a huge and inequitable tax burden that does not allow them to grow, and substantially reduces the fiscal asphyxia in sectors generating formal employment.”

Corporate income-tax rates will be gradually reduced from 33% today to 30% over the next four years.

“To increase productivity, VAT will be allowed to be deducted from the investment in capital goods starting in the taxable year 2019. In addition, companies will be able to deduct 50% of the ‘Industry and Commerce Tax’ from the taxable year 2019 and 100%l in 2022. The deduction of 50% of the ‘Lien on Financial Movements’ is maintained,” according to the Ministry.

Meanwhile, a new “SIMPLE” alternative taxation system “seeks to simplify compliance with the tax obligations of legal or natural persons with annual gross income of less than COP$2.75 billion [US$847,500]. Using a single form, they can settle their income tax obligations and ICA [Industry and Commerce Tax], reducing the costs of compliance with their tax obligations and promoting formalization [of employment],” according to the Ministry.

“In addition, SIMPLE system rates for small stores, mini-markets, micro-markets and hairdressers already are included in VAT liability. On the other hand, restaurants will liquidate the consumption tax in the same form,” according to the Ministry.

The new law also includes a 1% tax on assets of more than COP$5 billion [US$1.54 million], while real estate sales valued at more-than COP$918 million [US$282,760] will be hit by a 2% consumption tax, except for rural properties destined for agricultural production.

In addition, the personal income tax rate is increased for people with average monthly incomes greater than COP$40 million [US$12,320].

The extra tax revenues resulting from the new law “will be directed mainly to address the subsidized health system, social programs such as ‘Families in Action’ and the ‘Elderly and School Feeding Program,’” according to the Ministry.


Written by Published in Taxes February 01 2017 0

Editor’s Note: The following column was written by IRS enrolled agent and chartered financial analyst (CFA) John Ohe of Hola Expat Tax Services. Medellin Herald does not specifically endorse the author’s opinion; this column is for general information only and should not be construed as personal tax advice.


Written by Published in Taxes December 29 2016 0

Colombia’s House and Senate on December 28 voted to approve a wide-ranging tax-reform law, which won immediate approval from President Juan Manuel Santos.


Written by Published in Taxes December 28 2016 0

Editor’s Note: The following column was written by IRS enrolled agent and chartered financial analyst (CFA) John Ohe of Hola Expat Tax Services. Medellin Herald does not specifically endorse the author’s opinion; this column is for general information only and should not be construed as personal tax advice.


Written by Published in Taxes October 20 2016 0

Colombia’s Home Minister (Ministro de Hacienda) Mauricio Cardenas on October 19 finally unveiled a long-awaited, 182-pages-long tax reform proposal that would bring business and investment taxes more in-line with international standards -- and thus help Colombia attract more investment while creating more “formal” employment as well as more personal income taxes.


Written by Published in Taxes October 08 2015 0

Tax filing requirements and taxpaying obligations for expat residents, foreign investors, non-resident visitors and even citizens in Colombia raise many questions – which explains the demand for expert accountants and (sometimes) specialized tax lawyers here.


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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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