The controversial points of the tax reform in Colombia

The Colombian Congress approved the tax reform proposed by the Government of President Gustavo Petro, after the majority of the Senate and the House of Representatives voted in favor of the bill.

After a 12-hour day of work and debate that began Thursday morning, the House of Representatives approved it with 120 votes in favor and 20 against. Previously, in another 15-hour debate that ended in the early hours of that same day, the Senate had done so, with 63 votes in favor and 13 against.

Petro’s flagship proposal seeks to raise 20 billion pesos (about 3,900 million dollars), below the 25 billion (5,000 million dollars) initially proposed due to the changes made on the way, which will be allocated to serve the sectors most vulnerable in the country and promote the areas of education, food and industrialization of the countryside, among others.

The main topics that were included are the following, according to El Tiempo:

– Surcharge of the progressive income in the mining energy sector, based on the international price in the last ten years.
– Temporary surcharge for financial and hydroelectric entities.
– Prison for tax evaders who reoffend for the third time.
– Wealth tax.
– Tributes to people with incomes greater than 10 million pesos per month (1,900 dollars).
– Dividend taxation with a rate ranging from 0 to 20%.
– Tax of 15% for occasional winnings and 35% for lotteries, among others.

As several modifications were made in the two chambers, it is expected that the reform will return to the Senate to the conciliation table and that a common text will emerge next Tuesday, according to El Espectador.Reactions to the reform

The Minister of the Interior, Alfonso Prada, who participated in the session of the House of Representatives, notified on his Twitter account that the reform had been approved «which guarantees that the Government will have the necessary resources to finance its ‘transformation’ projects». 

During the debate, the House approved 16 new articles related to taxes that benefit students who have reimbursable educational credits; VAT collection for credit cards and bullfighting shows; VAT exemption for textile pieces made in prisons and for hotels in the Amazon; tax benefits for parents with children with disabilities; exemption from tariffs for agricultural products; tax exemption for indigenous councils and black communities, among others, reports El Espectador.

In addition, they voted in favor of establishing a 30% differential income for micro, small and medium-sized companies. This proposal did not have the support of the Executive, so it will be discussed in the conciliation. According to El Heraldo, if approved, it would have a fiscal impact of almost one billion pesos (200 million dollars), so the government’s collection projection would be 19 billion pesos (3,800 million dollars).Senate approval

In the Senate session, the head of the Treasury, José Antonio Ocampo, had said that the vote in favor of the proposal occurred after a «hard» debate and «under the framework of a great conciliation».

On social networks, the senators of the bench of the ruling Historical Pact, which makes up the parliamentary majority, celebrated the decision.

Senate President Roy Barreras wrote that «a reform for equality that closes the social gap» was approved.

Along the same lines, Senator Iván Cepeda published that the vote in favor of «the first progressive tax reform in the country’s history» was a «triumph of the Government that leads this historical change and its majority benches in Congress».

Wilson Arias, from the Polo Democrático, recalled that, «as the right-wing sectors well explained», people who earn between 10 and 60 million pesos a month (between 1,900 and 11,000 dollars) are taxed.

«Don’t say that it was ‘pupitreada’ [quickly approved], because the discussion lasted three months».

As expected, the senators of the Uribista Democratic Center, who now form part of the opposition minority, did not approve the project. In their seats, posters were seen that read: “PetroReform of Hunger“.

The right-wing deputy María Fernanda Cabal, a staunch opponent of Petro, asserted that the reform «is disguised as false empathy, while threatening the access to food for the Colombians».

Her political party colleague, Senator Miguel Uribe Turbay, published that the reform «will increase unemployment, poverty and inflation».
The most critical issues of the reform

The most critical points, where there was the greatest controversy both in the debate and in the media, were the so-called healthy taxes on ultra-processed foods, the prohibition of deducting royalties from income tax payments for mining and energy companies, and the Church tax.

With regard to ultra-processed foods, those who promoted the proposal believe that taxing these types of products causes a reduction in their consumption, which is related to diseases such as diabetes, hypertension and obesity.

On the other hand, those who voted against maintain that raising the prices of these foods and sugary drinks will have a direct impact on the pockets of the poorest, at a time when the South American country has an accumulated inflation of 10.2%, which is almost double that of 2021, which was 5.62%.

However, some point out that the strong opposition criticism is hiding the protection of the interests of the industrial conglomerates that manufacture these products and that have links with the country’s politicians.

In this regard, the Minister of Finance assured that no taxes will be imposed on bread (despite the fact that it was in the original text), milk, honey, wafers and the bocadillo, a guava preserve traditionally consumed in Colombia. Similarly, the tax on sugary drinks and ultra-processed foods will begin in the course of 2023.Royalties

Senator Gustavo Bolívar cataloged the article on the non-deductibility of royalties as «the most important» of the tax reform.

The congressman maintains that if the royalties are deducted from the rent, they are advance payments. In his opinion, the coal and oil companies do not pay them and «they take the national wealth and leave enormous environmental liabilities without leaving a dollar to the municipalities».

For the senator of the Democratic Center, Paola Holguín, this decision will make Colombia stop being a competitive country because royalties are not understood as an operating cost «as it happens in other countries».

For their part, the extractivist companies argue that this legal determination will affect them in such a way that they could even stop operating in the country.Taxes for churches

Although an article on taxing certain church activities had been included in the tax reform proposal, the initiative did not prosper and was eliminated.

Barreras had stated that they were not looking to «tax the churches, but the collateral businesses of many pastors who get rich».

Conservative senator Mauricio Giraldo, who rejected the tax reform because he considers it «unfair and indolent» because «it would cause a catastrophe in the economy», argued that the resources collected by the churches could be reinvested in fulfilling their mission and not in taxes.