Colombia`s Congress passes watered-down Tax Reform

On Wednesday 19th, 2018, the Colombian Congress has passed a weakened version of the proposed tax bill. Only half of the expected tax revenue could be enforced.

 

Fiscal Budget 2019

The decision about the tax reform was the result of weeklong discussions between Congress, the Lower House and the Senate. They agreed on a fiscal budget of 7.8 Trillion Pesos ($2.4 Milliarden) instead of the planned 14 Trillion Pesos.

Instead, Congress forced the government to implement strict saving measures in order to meet its fiscal goals. The goal is to reduce the fiscal deficit to 1% of the GDP by 2027 wherefore a reduction from 3.1% this year to 2.4% in 2019 would be necessary.

Abiding by the fiscal goal in turn is important for Colombia`s rating on the international financial market with view to credit conditions. S&P has downgraded Colombia last December to BBB-. Only in February of 2018 has Moody`s upgraded its status from “negative” to “stable”.

 

Reform Measures

The measures of the tax reform that have been passed are:

  • an increased income tax for high earners
  • a reduced income tax for companies
  • increased measures against tax evasion
  • lowered taxes on investments in local Treasury Bonds by foreign investors

However, president Ivan Duque did not succeed in pushing through increased VAT rates on food which was considered particularly burdensome on the poor. Moreover, the Ministry of Finance froze 6,2 Trillion Pesos of the 2019 fiscal budget. While some critics doubt the efficiency of the reform due to the immense cuts, Senator Richard Aguilar remains optimistic:

 

“This reform generates something positive in lowering the corporate tax burden and has an effective plan to fight evasion and contraband…I don’t see the need for another reform during this government.”

 

These regulatory changes could affect your business with view to customizing or support of your ERP/SAP system. Please contact us to learn about possible necessary reactions to the changes – we are happy to assist you!