How are Colombians affected by changes to their income tax returns? Taxes | Economy

The tax administration reforms approved by Congress have put a huge strain on the wallets of Colombians since the tax reforms pushed by former Finance Minister José Antonio Ocampo were approved by the end of 2022. In some cases, they have to pay Dian more, while in other cases they are not able to receive the same benefits as before.

Income tax returns and reports that must be submitted to the National Tax and Customs Administration; these are two examples of this reality where experts in the field believe that changes in the rules of the game are having an impact on deductions, mainly changes in the limits of what can be deducted and the items calculated in these reports.

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This is the case, and some departments say it is a “button”. This was announced at the time, and although no one seems to have paid attention to it, it should currently serve as the basis for discussion of the financing law prepared by the Ministry of Finance, which aims to tighten the tax screws slightly and will also generate nearly $12 billion in revenue for the state by 2025.

Changes in deductions

To find out what is going on and what is behind this pressure that taxpayers are feeling, Portafolio spoke with several experts who recalled that it is all part of the tax relief for 2022, both in terms of deductions and reliefs, such as tax-free income; and it is felt by both employees and independents.

Income Tax Return

Diego Caucayo – Works

First, Carlos Neira, KPMG tax and legal services expert, explained that the first point is the limitation of tax benefits, from 5,040 tax value units (UVT) to 1,340 UVT, where While deductions can still be made on the report, overall the amounts taken are small.

“What our tax reforms historically have done is limit the ability of natural persons to plan for their taxes. And that’s done by limiting the amount I can reduce from my tax base. That is, there are fewer and fewer pieces that can be granularly calculated in terms of earned income or gross income, so there’s less to report or pay.”

To better explain his point, Neira pointed out that previous tax incentives Together they probably amounted to close to $180 million, a figure that was reduced to just over $56 million with the changes approved under the tax reform, so the pressure will undoubtedly be felt when reporting income.

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Likewise, for Olga Viviana Tapias, member of the Taxation Committee of the National Institute of Public Accountants, it is also necessary to take into account the reduction of the 25% tax-free income limit to which employees and some self-employed persons are entitled; the increase from 2,880 UVT to 790 UVT; leaving a fund of slightly more than 33 million dollars for the 2023 tax year.

Withholding at source

Another modification in the tax game that has an impact on filings is withholding tax at source, which KPMG’s Carlos Neira says will apply from 2023, but many people are unaware of. Applying it, today they see that they have to pay more than they expected.

Income Tax Return

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“They should ask employers to verify in the withholding tax procedure at source. That is, predict what will happen in the statement. All this is because there are two withholding procedures at source. One is that I calculate on a monthly basis, which gives me a tax and gives me a tax rate based on the level of income, and the other is what we usually have, which calculates the tax rate based on the historical income of the last 12 months,” Neira pointed out.

In this sense, he said, when new solutions must be appliedmany people are doing this process with the old commissioning fee. “What does this mean? “The tax rate that was applied in the first half of last year is not enough to cover the taxes I am paying now.”

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Tax Planning

Carlos Giovanni Rodríguez, also a member of the Tax Commission of the National Institute of Public Accountants, joins the debate and believes that there is no way to change this reality, since these are the laws that are being implemented in the Republic. Therefore, he suggests that it is better to look to the future and think about how to plan your personal finances to mitigate the impact.

“Tax planning must take into account the type of income that will be received and evaluate alternative compensation options that are not subject to regulatory restrictions, such as contributions to institutional pension funds, employees and involvement in scientific, technological or innovative work, etc.,” he said.

Dean

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Olga Tapias supports the idea, adding: “It is essential to plan cash flows taking into account tax payments in order to avoid surprises when faced with higher tax amounts. In this sense, it is recommended to align the taxes withheld during the year with those ultimately collected.”

These analysts from the National Institute of Public Accountants are warned to shut down Although these regulatory changes attempt to demonstrate before the OECD and other international organizations that Colombia has a balanced system for taxing natural and legal persons; they are not handled in the right way and will only affect employees.

They also said that there is no doubt that such a tightening will lead to a significant decline in consumption and investment capacity, which “will have an impact on the economic growth of our country, since such measures discourage formal employment and encourage informal employment and social structure. “Elusive.”

“If middle-income earners don’t see a big wage increase, their purchasing power will be reduced by paying income tax, which will be phased in. due to tax withholding at source and increase in withholding tax in subsequent annual returns,” they concluded.