Colombian Senate Approves Tax Reform Measure

The Colombian Senate approved a new tax reform measure that is designed to fund a shortfall in oil-related income. The government expects the measures to cumulatively increase revenue by up to US$24.5 billion over the next four years to partially make up for declining oil revenues. 

The proposed tax bill would increase the government's share from each oil barrel to 75 percent from 70 percent now. Crude oil represents 6 percent of Colombia's GDP and 16 percent of the government's tax revenue.

The details of the new bill include a measure to impose a tax on large companies with high profit margins, which will rise by one percent each year, from four percent in 2015 to nine percent in 2018. 

The private sector has responded negatively to government proposals, which could raise the income tax rate paid by private companies in the next four years and may lead to a reduction in the wealth tax compared to the initial proposal. 

Initially the government had indicated that it intended to raise the top rate of the wealth tax from 1.5 percent to 2.25 percent on the assets of persons and companies. However, due to mounting pressure and lobbying by business groups, it decided to maintain the rate at its current level. 

Following negotiations between the government and union representatives, the proposed wealth tax will now begin at 1.15 percent, before falling to 1 percent in 2016, 0.4 percent in 2017, and zero in 2018.

Recently, Colombian President Juan Manuel Santos defended the measure stating that the “wealth tax” would only affect those with liquid assets of more than US$994,000, and would not impact the middle class. 

Jorge Enrique Robledo, a senator from the Democratic Polo party, stated that the measure failed to address structural inequalities in Colombia.

“The bill fails because it maintains a tax system that rests of the taxes of the poorest and the middle class. Even though the government says otherwise, it is a lie,” he said. 

According a report published by Oxfam, due to the most recent tax reform, which took effect in 2013, Colombian corporations are only responsible for paying 13.5 percent toward state social security, health benefits and vocational training programs. Instead largely middle class salaried workers through the high taxation on income finances the large majority of these programs.

Income distribution in Colombia is very narrowly concentrated in which the top 1 percent account for 20 percent of total income, more than doubling the OECD average.