The message seems to be that the tax burden always falls on the same ones, and on those who fully comply with their tax obligations.
The general objectives of the financing statute, according to the publicly known discussion, were mainly three: to obtain the funds needed to cover the part of the budget approved that did not have funds, to reduce the effective tax burden of the companies, and to re – balance the tax burden between business enterprises and individuals.
According to the presentation known, which will be discussed in the next few days in the joint commissions of the Senate and of the House of Representatives, everything seems to show that, in spite of the good intention of the Government, none of these three objectives has been achieved in full.
Regarding collection, the expected additional income balance was lower than the amount of the budget approved that had not been funded. The expected reduction of the next taxation of the companies does not seem to be possible considering the increase of the tax rate applicable to the dividends; in practice, even with the benefits forecasted by the reform everything seems to prove that in the end the effective combined rate of income tax and dividends’ tax would be going up.
Regarding the re – balancing of the tax burdens between business enterprises and individuals, what would be happening is that they are overcharging the contribution of high – income, high – wealth individuals.
From this initial introductory analysis, it can be said that the financing statute sends the following messages: it would seem that there will not be enough money to cover the budget deficit. In consequence, the public expenditure should be necessarily reduced, the tax burden of the business activity, considered as a combination of the corporate income tax and the dividends’ tax, is not reduced.
On the contrary, it is increased, and the re – balancing of the tax burden between individuals and enterprises is, in practice, becoming an overburden for the high – income, high – wealth individuals who comply with their tax obligations in full. From the viewpoint of the country’s tax competitiveness, as well as from the investors’ viewpoint, this is not a good message.
It does not mean that all the aspects of the reform initiative are negative. The financing statute project has positive aspects that, without doubt, must be underscored.
We can highlight positive issues such as: the progressive reduction of the corporate income tax rate from 33 to 30 per cent; the progressive reduction of the presumptive income rate from 3,5 to 0 per cent; the tax deduction of 50 per cent of the ICA against the income tax due; the inclusion of the felony of tax fraud as a mechanism to deal with the tax evasion; the simplification of the natural persons’ tax regime, by partially eliminating the income scheduling regime; the additional measures against tax abuse, in particular regarding indirect sales of Colombian assets made abroad and those related to the sale of real estate in Colombia and provision of services; the provisions regarding mega – investments and exemption rules applicable to agricultural, livestock, forestry, technology, orange economy and VIS and VIP housing projects; the differential income for new hotel projects at 9 per cent; the discount of VAT from the investment in productive real assets against the income tax; and the permanence of the benefit applicable to voluntary contributions to pension funds and AFC accounts.
Are also positive the issues concerning the simplification of tax procedures regarding automatic refunds, partial payment of deductions reconciliation of legal differences with the authority and the termination by mutual consent of differences in control proceedings before the government.
Regarding international taxation, positive aspects are included, such as those related to the treatment of mixed income concerning foreign controlled entities, the one regarding the allocation of foreign – source income to permanent establishments in Colombia and the holding regime for international investments made from Colombia.
Are similarly positive the Simple regime that facilitates the tax compliance and the formalization of small businesses, the adjustments to the sub – capitalization regime and those related to the deductibility of taxes, among other.
Unfortunately, the financing statute also includes issues that have a very negative effect on the tax burden of the companies and on the tax overcharge of the individuals that comply with their duties, such as the increase of the dividends’ tax, as well as of the equity tax, of 1,5 per cent for four years for individuals.
The definition of such a limited amount of maximum acceptable income to apply the benefit to agricultural projects and orange economy projects is a negative thing. It is also inconvenient to establish a consumption tax on the sale of new and used homes, independent of whether or not the properties are of a significant value.
It is inequitable to charge income tax to the inflation component of the financial returns, because in the end the taxes are paid on nominal amounts that do not mean an actual enrichment, but merely the normal adjustment that correspond to the loss of economic value of the money as a consequence of the inflation.
Regarding VAT in products of the basic basket, is it possible that a serious error was committed by trying to tax them with a general rate equivalent to 18 or 19 per cent. The reasonable thing would have been to establish a very low differential rate regarding the VAT on the basic basket, of about 4 or 5 per cent.
Regarding the normalization of non – declared assets, there is a mixture of positive and negative perceptions. Positive is the opening of the possibility of full tax compliance for those who still have undeclared assets or who include nonexistent liabilities in their tax returns.
However, a bad message is being implicitly sent to those who comply with all their taxes, because they always end being overcharged. This is inconvenient when trying to build a culture of tax compliance for all the taxpayers.
In summary, the message seems to be that the tax burden always falls on the same ones and on those who fully comply with their tax obligations. That is bad news for the investment and for the investors.
Juan Guillermo Ruiz H.