(CNN Spanish) — The tax reform of Gustavo Petro, a pillar of the campaign that led him to the presidency of Colombia, is already in Congress. From the reduction of benefits for those with incomes of more than 10 million pesos per month to the introduction of taxes on sugary drinks and ultra-processed foods, we review here some of its main points.
The bill aims —according to the text that can be consulted here— to reduce the “inequitable exemptions” that people with higher incomes and some companies have today and fight against tax evasion. In this way the administration will obtain, according to its forecasts, the funds to finance its ambitious social program.
The text uses four words to define the characteristics of the reform: “progressiveness, equity, efficiency and sufficiency.”
The income and wealth of the richest, at the center of Petro’s tax reform
The income on natural persons is at the center of the reform. The goal, in the words of the bill, is to improve vertical and horizontal equity. In short: those with more income and wealth pay more and those with the same ability to pay contribute in similar terms.
The 130-page bill does not skimp on statistics to justify its proposal. Regarding the Income Tax of Natural Persons, they affirm that the collection of Colombia is, based on 2020 figures, about six times lower than the average of the Organization for Economic Cooperation and Development (OECD): that year it rose to 1.3% of GDP against 8%. This low collection, according to the text, means that the system is supported by contributions from companies and indirect taxes, making it not so progressive.
The proposals linked to personal income would ensure that, according to government projections, the group with the highest income (140 million gross pesos onwards, about US$32,400) would be taxed 9.3% more with the reform.
Limits on benefits for those with incomes greater than $10 million per month
The project establishes limits to the tax benefits of people who have incomes greater than 10 million Colombian pesos per month (about US$2,300), which according to the text are 2.4% of the population.
“The biggest increase is only for about 34,000 people,” Minister José Antonio Ocampo said about itdescribing this group as “34,000 ultra-privileged” of the tax system.
The reform proposes a permanent wealth tax that, unlike the one in force between 2019 and 2021, improves progressivity according to the text. Those with assets greater than 3,000 million Colombian pesos (about US$695,000) would pay 0.5 and the value would double to 1% for people whose assets exceed 5,000 million (about US$1,157,000).
And the companies?
At the center of the debate have also been the contributions of companies. Unlike what happens with individuals, the income tax of legal entities is higher, as a percentage of total income, than the average for Latin America and the OECD countries.
The text proposes that “asymmetric” tax benefits that only some sectors or territories receive be eliminated and that a maximum be established for the benefits that companies can obtain.
The project proposes a tax on crude oil, coal and gold exports that responds to the environmental vision and also seeks that the “extraordinary benefits” of the high prices of the aforementioned raw materials “contribute to the well-being of the most vulnerable population and to the fiscal consolidation”. The tax would be 10% on a base price.
Other taxes linked to the energy transition
The Historic Pact program makes a strong commitment to reducing dependence on fossil fuels and advancing in the transition towards cleaner energies.
In this line, the project proposes to modify the carbon tax to tax the sale, import and withdrawal of thermal coal. To avoid “unwanted effects” on power generation, it proposes a gradual implementation of a rate that would increase steadily by 2028.
The carbon tax would fall on “the equivalent carbon content of all fossil fuels including those derived from petroleum and all types of fossil gas that are used for combustion,” according to a presentation by the Ministry of Finance of the project.
In the environmental field, the proposal for a tax on single-use plastics in Petro’s tax reform is also highlighted, which would coexist with the one that already exists on plastic bags.
The reform eliminates the “days without VAT”, three days a year that, as of 2020, eliminated the sales tax on certain products. The objective of this measure was to promote the economy through spending.
However, there is a “wide debate” about its benefits, says the text, which highlights three arguments: it reduces income from VAT, it can be regressive since households with more income are the ones that spend more and, according to the literature specialized, measures of this type do not increase consumption because what they do is that people simply wait until the benefit is there to make their purchases.
Currently, goods that come from countries with which Colombia has a Free Trade Agreement and do not exceed US$200 are exempt from VAT, due to the commitments that were acquired within the framework of the agreements with those countries. But the destination from which they come does not necessarily coincide with the destination in which they were manufactured, so the reform proposes to modify the law so that the articles that are contemplated are only those whose countries of origin have an FTA with Colombia. A clear example is the case of the United States: according to Petro’s tax reform, products produced there would be exempt from VAT, but not those that arrive in Colombia from the United States but were manufactured in another country with which There’s no deal.
From sugary drinks to ultra-processed foods, the “health tax” proposal
Sugary drinks, ultra-processed foods and those with large amounts of added sugars have their own chapter in the reform that, through taxes, seeks according to the text to discourage consumption and obtain resources for the needs of the health system linked to illnesses related to these foods.
Sugary drinks with between four and eight grams of sugar per 100 ml would pay a tax of 18 Colombian pesos for that amount, and the figure would increase to 35 from 8 grams.
In the case of ultra-processed foods and with excess added sugars, a 10% tax is imposed on the sale price.
One caveat: some goods such as mortadella, botifarra and salami would not be taxed with this tax “so as not to affect the income of the most vulnerable households”, considering that they are of great importance in the basic basket.
Among the examples of success stories of these taxes, he cites Mexico where, after implementing a tax of one peso per liter on sugary drinks in 2014, the consumption of these drinks fell by 5.5% that year and almost 10% the following year. . In a period of 10 years, experts calculate that it could prevent more than 61,000 cases of diabetes, almost 4,000 of stroke and more than 2,800 of hypertension, among other figures.
How much does the Government plan to collect with the Petro tax reform?
By 2023, the new administration intends to collect 25 billion Colombian pesos with the reform (US$5 billion), equivalent to 1.72% of GDP. From 2024 to 2033, the objective is a collection of 1.39% on average.
The figure is considerably higher in the medium term: the goal is to reach 3.4% of GDP per year, which is 50 billion pesos, a number that would also be the result of the fight against tax evasion and avoidance, which is a priority. for administration.
What does this translate to? The Government projects that in addition to the reduction in poverty, the reform would cause inequality in the country to fall nine times higher than what has been registered as an average in the last 14 years.