Adverse effects due to more taxes on companies

August 17, 2021

On August 14, 2021, the “Semana” website reported in the Tax section the possible adverse effects due to more taxes on companies.

According to corporate legal advisors, they are concerned about the 2021 tax reform related to the 35% income tax rate, which implies a tax burden of 68.6% for the private sector.

2. According to the ministry of finance

The Ministry of Finance argues the tax structure would be more competitive with the implementation of the proposed measures than in 2018. For example, a company with profits over 800 million per year had an obligation with the Treasury of 72.9%, then would there be a reduction of 4.3 points, even with the increase in the tax.

3. Central problem

Even the tax reform was designed and agreed upon by the companies, the surprise among law firms was the establishment of a permanent rental rate, as some supporters consider that it should be temporary.

4. Incrase in corporate income tax

According to Luis Orlando Sanchez, tax partner of EY Colombia, “the most important revenue measure in the reform is the increase in corporate income tax from 2022, when a rate of 30% would have been planned, i.e., 5 points more, which can be even deeper in the case of the financial sector”.

It has also been considered that Colombia is taxed more, because when dividends are distributed, there is an additional 10% with a possible result of a combined taxation of 41.5%.

5. Reduction of tax competitiveness

It would not be advisable the indefinite tariff would reduce the country’s tax competitiveness, making Colombia less attractive in terms of investment since all the burden would be concentrated on companies that generate employment, and all this does not help the accelerated economic recovery.

6. Finance system reform

On the other hand, it is considered important to reform the financial system. It has been proposed to create second-floor banks to take away the monopoly of the traditional ones to finance projects and companies throughout the country. The banks should contribute more since these have unconscionable usury rates on many occasions.

Source: Semana 17/08/21