Published on Wednesday, July 28, 2021

Colombia | Analysis of the fiscal reform bill

The Government submitted, the fiscal reform bill that includes social measures, mostly transitory, to mitigate the effects of the pandemic on the most vulnerable and raises tax collection by 15.2 trillion pesos permanently, of which 70% from corporate taxes and the rest from anti-evasion and austerity measures.

Key points

  • Key points:
  • In the social area, the payroll support program -PAEF-, focused on companies with 50 workers or less, and the Solidarity Income program are extended on a temporary basis. There is also support for employment and higher education
  • In the tax area, the main measures are the increase in the corporate rate from 30% to 35% as of 2022, the continuation for three additional years, from 2023 to 2025, of the 3-point income surtax for financial entities and the continuation of the 50% discount on the Industry and Commerce Tax -ICA-, which without the reform would increase to 100% as of 2022.
  • Most of the revenues expected from the reform are of a permanent nature, with the exception of the financial sector surcharge and the tax normalization, and the main social expenditures introduced are transitory. With this, the reform would contribute to a significant improvement in the government's balance sheet in the medium term, starting in 2023.
  • Despite the fact that the reform was already included in the Government's accounts presented in the Medium-Term Fiscal Framework, the Central National Government debt as a percentage of GDP remains at very high levels, close to 70% in 2023-24.
  • Regarding the political economy of the reform, it is a bill submitted with a message of urgency, simple, with few articles, without politically unfeasible issues and previously agreed upon with the political parties, so that the process in Congress will be agile.

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