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A few weeks ago, the national government presented its strategy aimed at boosting economic recovery in the coming months. One of the initiatives that was part of the legislative part of the plan was the proposal of a financing law in which the executive branch would seek $12 billion to close the current “gap” in the General State Budget (PGN) until 2025.
For the oil company government, this new wave of taxes, combined with forced investments in the financial sector, achieves the goal of revitalizing the economy and balancing public finances. Because this is what the so-called “financing law” means: it constitutes a new tax reform that will extract huge amounts of money from the economy, households, and productive activities, even compared to previous tax reforms.
The government warned that the move would reduce the nominal corporate income tax rate from 35% to below 30%, but its technical details are still unclear. In addition, he announced that it would not touch the value-added tax or modify the threshold for income tax filers. However, a 5 percentage point reduction in corporate taxes alone would cost the Treasury about $10 billion.
In other words, with these restrictions already announced, these billions of resources will come out of the pockets of declaring families and households, from the possible increase of the current health tax, green tax and other taxes, as well as from surcharges and additional burdens on the following sectors: mining, energy and finance. In short, what some do not receive will come from others.
Although the tax incentives of the measure are clear, its ability to “reactivate” the economy is questionable, especially in terms of stimulating investments and job creation. Instead, it could hit more sectors that are currently suffering from the economic slowdown. It is worth remembering that companies of all sizes and Colombian households have already experienced several tax reforms in succession in 2021 and 2022, and their severe impact on companies is still being experienced.
In the context of the current economic slowdown, the mere announcement by Casa Nariño of the intention of this new tax increases uncertainty among economic actors and draws criticism from experts and market analysts. While economic actors await the delayed definition of an urgent, tangible and concrete restart plan, the oil government is betting on the bills that Congress will take up, such as tax reform and the “mandatory investment” initiative.
Another aspect that sours the atmosphere around this tax proposal is the lack of a real commitment by the national government to reduce public spending, especially operating expenditures. In the current fiscal crisis of such severity, the administration has not adjusted the 2025 budget to economic realities, but has sought to extract more resources from households and businesses.
To this, we must add that the oil company government shows no signs of wanting to control and improve the efficiency and effectiveness of its spending, improve the execution rate of public investments, and strengthen the fight against corruption and laziness. It is therefore inconvenient and ill-timed to seek tax increases when households and businesses are struggling to make progress in a slowing economy with no clear path to recovery.
Francisco Miranda Hamburg
framir@portafolio.co
X: @pachomiranda
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