Petro Plans Fifth Tax Reform as Colombia’s Deficit Stays Above 6% of GDP

When the man who wrote your only successful tax reform publicly says the next one will fail, the signal to investors is not subtle.

Colombia’s Finance Minister Germán Ávila confirmed this week that the government will present a new Colombia tax reform to Congress on July 20 — the start of the new legislative session. It will be President Gustavo Petro’s fifth attempt to raise revenue through tax legislation, in a cycle that has become one of the defining features of his administration: propose, fail, declare emergency, repeat.

The Track Record

Of Petro’s four previous tax reform attempts, only the first — steered through Congress by Finance Minister José Antonio Ocampo in late 2022 — was approved through normal legislative channels. The most recent effort, a COP$16.3 trillion ($3.8 billion) “financing law” filed in September 2025, was killed by the Senate’s Fourth Committee in December by a vote of 9-4. Petro responded by declaring an economic emergency and implementing tax measures by decree — the third time he has used that mechanism.

Tax law expert César Cermeño noted that “three of Petro‘s reforms were processed through states of exception, bypassing the democratic principle that taxation requires representation.” In 16 years, Colombia has approved eight tax reforms across three governments, totaling approximately COP$77 trillion ($18 billion) in cumulative additional revenue. The pattern — each administration arriving with its own tax package — has created a business environment where fiscal rules feel provisional.

What Ocampo Said

The most significant commentary came from Ocampo himself — Petro’s first finance minister and the architect of the 2022 reform. He said flatly that the new attempt has no prospect of passage. “The government has to cut spending. A new tax reform should happen, but that’s for the next government, not this one,” he told La República. Ocampo added that extending corporate wealth taxes — one of the measures reportedly under consideration — would be “unfortunate” and damaging to private investment.

The Fiscal Reality

The numbers driving the attempt are not in dispute. Colombia’s total fiscal deficit remains above 6% of GDP, and the 2026 budget of COP$546.9 trillion ($129 billion) has a COP$16 trillion ($3.8 billion) hole that no legislation has filled. Analysts at ANIF warned that without adjustment, the deficit could reach 7% of GDP in 2026 if temporary debt-service reductions are not maintained. The government’s debt trajectory is already at record levels.

The reform reportedly targets gaming, carbon taxes, and making permanent certain emergency levies — including the corporate wealth tax that Ocampo warned against. Former DIAN director Lisandro Junco argued the government is “trying to make permanent the taxes created during economic emergencies,” a move he said would further erode investor confidence.

What It Means for Markets

Colombia’s fiscal credibility is already strained. The central bank’s recent 100bp rate hike to 11.25% was partly a response to the fiscal deterioration. The emergency wealth tax decree triggered a separate Constitutional Court challenge that remains pending.

A fifth tax reform filing — even one expected to fail — introduces more noise into an investment environment already buffeted by Petro’s regulatory interventions, the central bank standoff, and Colombia’s approaching 2027 presidential election. For investors, the signal is not that taxes will rise. It is that Colombia’s fiscal framework under Petro remains unstable, unpredictable, and likely to be inherited — unreformed — by whoever comes next.