(CNN Spanish) — “Taxes those who have the most.” With these six words President Gustavo Petro summarized the content of the tax reform that is already in the Colombian Congress. But who exactly are the “haves” for the new administration, the first from the left in a traditionally conservative country? Here, a review of six population groups that will pay more taxes under the proposed text.
The Petro Government promised an ambitious program and needs money to finance it. The tax reform that he presented, according to his calculations, would allow him to obtain 25 billion pesos by 2023 and twice as much in the medium term.
One of its focuses is on individuals, who according to the text contribute significantly less to the state coffers compared to the economies of the Organization for Economic Cooperation and Development (OECD) and countries in the region such as Mexico and Chile. The Government maintains that in 2020 the income from the Personal Income Tax was 6.2 times lower than that of the OECD countries on average: they represented 1.3% of GDP against 8%.
Income, pensions and assets in the Petro tax reform
People with monthly income greater than 10 million pesos
The project establishes limits on 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, with which they would effectively pay more taxes. ..
According to government projections, the segment with the highest income (140 million gross pesos and upwards, about US$32,400) would go from being taxed at 16.4% to 25.7% with the reform, which implies an increase of 9 ,3%. This would apply to 0.1% of the population according to the figures in the bill.
And, on the other hand, the reform modifies the way of defining what constitutes income. It is the central modification of the reform and the one that will generate the most impact.
Today, if a person has a salary, they pay a fee for that income; but if in that same month, he receives an inheritance, he pays a different rate; and, if in addition, he receives a dividend, the rate is, again, different.
In addition to the amount, a key to the reform, as explained by La Silla Vacía, is the way in which income is defined, which is not only about salary but other sources such as dividends that will be added to define the percentage what to pay
“What the reform proposes is to take all of a person’s income, mix it in a kind of large bag or blender, and apply the corresponding rate, according to the progressive table, regardless of the type of income it is. This will generally imply an equalization of taxes between rentiers and employees, but, in general, an increase in the rate for everyone, if they earn more than 10 million for all those concepts”, explain the medium.
People with pensions greater than 10 million pesos per month
0.2% of pensioners, who are those who earn more than 10 million pesos per month, will pay taxes for this concept, according to the explanation given by the Minister of Economy, José Antonio Ocampo, in an interview with the magazine Week.
Taxation, around 20%, would be applied from 10 million. How? “You would only pay tax for what you earn above those 10 million pesos. I explain: someone who has a pension of 12 million, pays 20% for those 2 million more, that is, they would pay 400,000 pesos,” the minister exemplified in the interview, also assuring that Colombia is the “only country in the world in that both pension contributions and the pension itself are exempt from tax”.
In the discussion on this topic, questions had been raised about how much those with a pension greater than 5.6 million would pay. The director of National Taxes and Customs (DIAN), Luis Carlos Reyes, spoke on the subject, saying: “5.6 million are exempt income, but the remaining 4.4 million are either taxed at 0% or are non-revenue income. In the end, the result is that no pension of less than 10 million is touched.
People with assets of more than 3,000 million Colombian pesos
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).
The government’s goal is to make it permanent. “We are going to propose it as a permanent collection mechanism. Colombia already had this tax permanently. When I was a young professional I paid this tax. Until I was 80, all natural persons paid this tax and it was an invention of Dr. López Pumarejo. That means that it was an invention of the 1935 reform and it lasted a long time,” Ocampo explained in an interview with The universal.
Some people’s casual gains
Today certain occasional earnings are exempt from taxes and others are taxed with a tax of 10% or 20% depending on the case, according to the text. This item includes, for example, inheritances, compensation for life insurance, lotteries and raffles, among others. The system makes, according to the justification of the Government, that people with the same income pay different amounts depending on the nature of the gain.
The text proposes a lower limit for tax-exempt income from occasional earnings in some items such as the sale of a house or apartment. Currently, the first 7,500 UVT (tax value unit) of the profits generated by a transaction of this type (285,030,000 Colombian pesos) are exempt. With the proposed reform, the amount would rise to less than half, 3,000 UVT. (114,012,000 Colombian pesos).
This is one of the points which is already generating debate in Congress.
And also the project aims to be progressive. “What we are proposing is that the tax on occasional earnings be progressive, that is, as I have more income, the rate (for taxes) is higher,” Reyes said in an interview with Radio Nacional.
Two separate taxes on income and wealth
So far, taxes fall on a segment of the population that, according to the Government’s arguments, is very small. However, there are two changes that would affect the population according to their consumption patterns and not depending on their income or wealth.
Consumers of sugary drinks and ultra-processed foods
The text provides for taxes on sugary drinks, ultra-processed foods and those with large amounts of added sugars. Its objective, he says, is to discourage consumption and obtain resources for the needs of the health system linked to the diseases that are 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.
In the interview with Semana, Ocampo admitted that this tax “can hit some low- and middle-income sectors” but that it “has a totally different origin and is related to public health.”
“The best result is that nothing is collected (by taxes related to health). That is, that people change consumption patterns and that the companies that produce them can offer other things,” he said.
Those who import goods from countries that do not have an FTA with Colombia
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.