President Gustavo Petro of Colombia secured a win yesterday as his tax reform proposal made it through the final step in Congress, paving the way to a 1.4-percent increase in revenue that should be used to finance an expansion of the country’s safety net in 2023.
The reform originally targeted COP 25 trillion in new taxes, but was cut to COP 20 trillion (USD 4 billion) after congressional negotiations excluded levies on pensions and churches.
The reform raises taxes on individual income for people earning more than COP 20 million (USD 2,000) per month, while also creating a new wealth tax targeting people with over COP 2.7 billion (USD 500,000) in assets, with steeper rates for higher earners reaching up to 1.5 percent of their fortunes per year for the highest bracket.
It also raises taxes on the country’s energy and mining sector, as well as creating a new levy on unhealthy foods with excess sodium, sugar, and saturated fats, and another on single-use plastics. Repeated tax evaders could also be facing jail sentences.
Colombia has made continued tax reforms throughout the years, failing to find ways to address its gaping fiscal deficit throughout multiple administrations, which it has covered through increased indebtedness, leading to questions around the country’s debt sustainability.
According to Fitch, deficit spending will narrow to 4.6 percent of GDP in 2023 from a record of 7.5 percent this year, “following the tax reforms passed by the Duque administration in 2021 and the winding down of pandemic-related expenditure, along with efforts to tackle tax evasion.”
Inflation has also recently reached a 23-year high in the country, limiting the option to resort to money printing in order to finance the deficit.
Mr. Petro will continue to actively push his reform agenda after his first congressional milestone, with a pension reform, a political reform, and even a labor reform all mentioned by the Colombian press as likely to follow.
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