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Although taxation is one of the most important sources of revenue for any country and the resources obtained through this concept are generally used to promote development, a poorly distributed burden on this issue can be counterproductive and affect development. Economic growth is mainly driven by the growth of small and medium-sized enterprises.
In the case of Colombia, this seems to be a scourge that has not yet been overcome, or at least that is what a report from the Fiscal Observatory of the University of Javeriana indicates, which states that the larger the business, the They have a lower tax burden, so those who are just starting out are the most affected.
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Oliver Pardo, director of the Observatory, said one of the key conclusions of this analysis is that companies that achieve profitability in order to avoid losses find obstacles to growth through higher effective tax rates than their larger competitors.
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“Review of effective tax rates in the Colombian context It is important not only because of the erosion of tax revenue and justice. This tax structure can lead to the concentration of businesses at the extreme ends of the income scale, which means that medium-sized businesses are relatively scarce, as small businesses may face higher tax burdens than large companies, making it difficult for them to transform into larger sizes,” he explained.
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As the scholar mentioned, the element used to compare the tax burden is the company’s effective tax rate (ETT), which he recalled is a key indicator for understanding the financial pressure a company is under, and made it clear that equity prosecutors have always been a topic of controversy.
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“In this survey, we found evidence that there are differences in the income tax paid by companies of different sizes in the 2022 tax year. In simple terms, the TET for legal entity income tax may be different from the nominal tax rate. The 35% tax rate may be different due to exemptions, surcharges, deductions, etc. and incentives that influence the taxes that companies actually incur,” Pardo said.
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In terms of specific data, according to the Javeriana Observatory, the effective tax rate for low-income companies in Colombia is currently high, at about 29%, and as income levels rise, the effective tax rate gradually decreases until it reaches 20%. For the largest companies.
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“We obtained TET for five firm size categories, From the smallest to the largest organizations. The 28% of the smallest companies (in terms of revenue) have very low TET (only 2%). This is because their revenues are low and most face losses, and therefore do not bear income tax. However, for the second largest 22%, the TET increases significantly to 29%, ”the report highlights.
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According to the conclusions and findings, these companies face the highest effective tax rates and although they have enough revenue to pay income taxes, they are not large enough to benefit from tax breaks for large companies.
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“For the 40% of companies that maintain size, TET drops to 26%. For the next largest 9%, TET drops further, to 23%. Finally, For the largest 1% of companies in the country, TET is less than 20%,” they added.
Oliver Pardo is director of the Fiscal Observatory at the University of Javeriana.
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The Fiscal Observatory of the University of Javeriana said these results show that larger companies have more resources, more interests and more strategies to reduce their tax burden and face lower effective tax rates, reflecting the core problem of tax inequality.
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“Once the company is profitable enough In order not to face losses, it now finds itself with a higher effective income tax rate than its largest competitor, which slows down its expansion and development,” said Oliver Pardo.
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That is why these scholars conclude by saying that they are concerned about the emergence of inequalities in corporate taxation, because for them this would translate not only into tax erosion and fiscal injustice, but also as a bottleneck to competition, innovation and economic development.
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Likewise, they called on the country’s authorities to undertake tax reforms that would promote a more equitable distribution of the tax burden, promote business diversification, tax justice and economic growth, while taking into account tax incentives They are numerous and complex, and calling for their elimination is not a realistic option.
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“We propose two complementary actions. The first is to strengthen the minimum taxation by increasing the minimum tax rate introduced in the 2022 tax reform from 15% to 20%, and the second consists in increasing the marginal tax rates on taxable net income, as in the case of natural persons,” concluded.
In this sense, they finally explain that the marginal interest rate As net taxable income increases, it will seek to offset the lower effective tax rates faced by larger companies and ensure that smaller companies are not disadvantaged, and this plan assumes that net taxable income will be proportional to total revenue if profit margins (profit as a proportion of revenue) are relatively stable.
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