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LATIN AMERICA ADVISOR

LATIN AMERICA ADVISOR

A daily publication Of the dialogue

September 16, 2022

Why Has Colombia’s Tax Reform Become So Controversial?

Soon after taking office last month, Colombian President Gustavo Petro’s government unveiled a tax reform proposal that seeks to raise approximately $5.8 billion. // File Photo: Colombian Government.

Q

A

José Ignacio López, executive managing director and head of economic research at Corficolombiana: “The new administration’s tax proposal moves in the right direction in some respects but falls short at trying to rebalance Colombia’s tax structure, which is skewed against businesses. The proposal seeks 1.7 percent of GDP in additional revenue, of which 0.8 percent of GDP corresponds to higher corporate taxes. The reform would make the tax system more progressive, as it would raise the effective tax rate of the wealthiest 2 percent of households. However, given that the bill raises taxes on dividends and capital gains while maintaining the 35 percent corporate tax rate—among the highest in the region—if approved in its current form, it would discourage new investments in the country, and therefore growth and job creation in the formal sector. We expect that during the next few weeks, the government will…”

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