Tax Reform

September 15, 2021

Since 2000, there have been 13 tax reforms in Colombia, meaning an average of one reform every 19 months and reflecting a clear tax instability, which is detrimental to taxpayers at the time of establishing tax planning. 

Tax conditions

As reported in La Patria, the new tax conditions as of 2022 show an important income redistribution process by allocating close to $13 billion to improve the living conditions of the sectors with the greatest economic difficulties and those most affected by the negative economic effects of the pandemic. The main expenditure items to be financed by the reform are: 

  • 8.7 billion for solidarity income between the remainder of 2021 and all of 2022; 
  • another $1.1 billion for the PAEF (Programa de Apoyo al Empleo Formal – Formal Employment Support Program); 
  • 0.7 billion for 2021 and 2022 for new subsidies for youth and the rest of the population; 
  • 1.4 billion earmarked for zero tuition at public universities for the two years mentioned above; and 
  • benefits for the tourism sector for $1.0 billion for 2022.

To point out that the Formal Employment Support or PAEF will be extended from May 2021 to December 2021 only for those potential beneficiaries with a maximum of 50 employees by the contribution period of March 2021. If at the time of applying, the potential beneficiary has a greater number of employees, access to the PAEF will not be lost, but will not qualify for contributions for a number greater than 50 employees (the contribution will only be granted once a month for the payrolls from July to December 2021).

The National Government would be empowered to extend by decree the PAEF extension until December 31, 2022, considering the economic indicators.

In addition, regarding the tourism sector, the transitory exemption in the payment of the surcharge or special contribution in the electricity sector for the providers of tourism services with active and current registration in the National Tourism Registration is extended until December 31, 2022.

Likewise, it was commented that of these resources, only $2.1 billion, equivalent to 16.15%, are destined to business incentives, i. e., to generate job opportunities. Due to today’s global circumstances, especially in less developed countries, support from the State is required, but it is also true that the development of a territory is not achieved with consumption subsidies, but an increase in the production of goods and services contributing to the creation of new job opportunities for the population.

Regarding the origin of the funds

It is intended to collect $15.2 billion from fixed sources and $2.7 billion from transitory sources for a total of $17.9 billion to meet the aforementioned expenses and other items to cover the operation of the State. An increase in the corporate income tax from 30% to 35% is projected (this rate will apply to domestic companies, permanent establishments of foreign entities in Colombia, and foreign legal entities with or without residence in the country that must file income returns) and a surcharge of 3% for the financial sector, i. e., an income tax of 38%. Businesses invoicing less than $3,600 million per year are excluded from the income tax increase, he told La Patria.

Finally, many consider that the current reform does not meet the condition of comprehensiveness that has been claimed and promised to the country in tax matters. Therefore, it is expected that this ideal will change as time goes by.

Source: La Patria 14/09/21