RIO DE JANEIRO, BRAZIL – Colombian President Iván Duque sanctioned the Social Investment Law on Tuesday (14), the new tax reform approved last week by both houses of Congress, replacing the one that provoked massive demonstrations against him on April 28.
This law aims to raise 15.2 trillion pesos (about 4 billion US dollars) to guarantee the stability of public finances and the reactivation of the economy after the ravages caused by the pandemic in the government’s coffers.
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“What we are materializing today is the most important reform of the 21st century,” said Duque during the act of sanction, which was attended by several congressmen and trade union representatives.
The reform was approved September 7 with 76 votes in favor and one against in the Senate and 124 in favor in the Chamber of Deputies, in votes in which a large part of the opposition was absent.
In addition to changing the tax regime, increasing corporate income tax for companies to 35%, the law, according to the government, seeks to reach between 12 and 15 million Colombians with social programs and is intended to be extended to 50% of the country’s population receiving economic hardship assistance.
The president assured that with this law, social benefits, such as the solidarity income granted during the pandemic to many households, or the VAT exemption to 2 million vulnerable households, will be maintained.
“More than 4 million households are going to have an economic support”, asserted Duque, who explained that it also includes subsidies to companies that hire people under age 28 to encourage youth employment, and that it aims to raise more than 1.7% of the Gross Domestic Product (GDP), something that “no reform of this century” has done.
“This is a reform that reconciles the social with fiscal responsibility. Only demagogues and populists believe that social reforms are made without fiscal responsibility,” the President remarked.
THE PREVIOUS REFORM
As a result of the pandemic, poverty in Colombia rose last year by 6.8 points compared to 2019. According to the National Administrative Department of Statistics (DANE), it stood at 42.5%, which means that the number of poor people in the country increased by 3.6 million people by going from 17.4 to 21 million, according to the National Administrative Department of Statistics (DANE).
This proposal comes after the previous tax reform bill unleashed massive protests, which began last April 28 and lasted for two months, coinciding with the most critical moment of the Covid-19 crisis.
With this project, the government expected to raise 25 trillion pesos (some 6.579 billion dollars) with unpopular initiatives such as broadening the tax base or the progressive increase in income tax for those who earn less.
The outbreak of a social crisis unprecedented in the recent history of the country caused the resignation of the promoter of the reform, Treasury Minister Alberto Carrasquilla. It forced Duque to withdraw the initiative, which was not debated in Congress, and to order the creation of this new document based on the consensus between political parties, civil organizations, academia, and the private sector.
For the full picture, see our Brazil Tax Reform: Complete Guide.