Colombia plans another tax reform: is it needed and what is it about?

By Daniel Guerrero

Gustavo Petro’s government has several reforms among its plans

It has already approved tax reform and is making progress in health, pension, and labor reforms, but another tax reform is planned on the horizon, but now focused on territorial taxes.

After Ricardo Bonilla arrived at the Ministry of Finance, he was asked about which of the plans of his predecessor José Antonio Ocampo he was planning to continue, and one of them was precisely a territorial tax reform.

However, Bonilla was emphatic that the reform plan is not intended to be implemented this year but later, possibly in the first half of 2024.

“Territorial taxation is still in the plans, but not necessarily for the year’s second half.”

“We want to make some very important technical tables with the outgoing and incoming governors because they are the ones who will care the most,” said Bonilla.

We cannot lose sight of the fact that in the second half of this year, Colombia will have to go to the polls again to elect local governors.

These will be key in relation to taxes and territorial stamps, as well as in the aspects related to the liquor companies of each department and the fiscal resources that these generate for the municipalities.

Bonilla assured that “there are several diagnoses of this; we need to reduce the tangle of taxes that are 16 or 17 between municipalities and governorships, of which more than half are inefficient in collection”.

In fact, the president of Congress, Roy Barreras, has stated on other occasions that the territorial tax reform is necessary, not necessarily to increase the stipulated taxes but to give order to these taxes.

Recently, the Externado University was the meeting place for the country’s finance secretaries to discuss the initiatives to be studied, which are directly linked to the generation of economic and social development of the territories, based on a vision of the budgetary and tax reality of the territories and their socioeconomic dynamics, under the vision of regional equity outlined in the projected ‘National Development Plan’.

Olga Lucia González, director of the Department of Tax Law of the university, said in this regard that “its importance lies in the current situation, as the vision of regional equity of the National Development Plan and the announcement of the National Government on the great territorial reform.”

“Therefore, the Department of Fiscal Law and the Council of Territorial Public Finance -CEHPT- have joined efforts and experience to convene a technical and calm reflection, from the theoretical, from practice, and from the different visions, to contribute elements to the debate and achieve the true ‘reordering of the territorial planning’ that the country needs,” he explained.

Bernardo Carvajal, director of the Department of Administrative Law of the Externado, said:

“First of all, we must clarify that without financial autonomy, there is no real and possible degree of territorial autonomy; for this reason, the administrative exercise from the territories is very important for progress in fundamental issues of the country.”

“This house of studies is very clear that Colombia is made up of united regions and provinces and that social transformation can only come from our territories,” he said.

But the idea of redesigning territorial taxes is not a new issue; in fact, there have been several unsuccessful attempts.

“There have been many attempts. The first one was that of Rudolf Hommes, in 1994, with the attempt to reform taxes and territorial tax administration”, said Andrés Langebaek, director of economic studies of Grupo Bolívar.

Langebaek also stated that “there are several problems, but perhaps the most important is the ICA tax (Industry and Commerce Tax), whose taxable base is sales and invoicing and not value-added, so it tends to be more onerous in commercial activities than in manufacturing or other sectors.”

“The ICA taxes sales and makes it an inequitable tax; it is a tax that needs to be reformed”.

Additionally, Langebaek assured that “the ICA is absolutely medieval and anti-technical. But there are other issues, such as the idea that liquor production monopolies belong to the territorial entities.”

“Many could take better advantage by granting licenses for third parties to produce them.”

“There are also elements such as the cadastral update and the rationalization of rates that is very relevant; now there are entities that can set property tax rates.”

“There has been a war where some municipalities take advantage of the fact that there are already established industries.”

“For example, Paz del Río cannot leave Belencito, and they decide to raise the rate without objective criteria, and without studies, there are many important elements to be reviewed”.

With information from Bloomberg

For the full picture, see our Brazil Tax Reform: Complete Guide.