Colombia Outlines New Tax Bill, Possible Effects On Large Coffee Producers
Coffee Network (Bogota)- Coffee producers in Colombia with a net worth higher than 2.736 billion Colombian pesos (US$640,000) will pay the new net worth tax as part of an ambitious tax reform introduced in congress yesterday, the first move of Gustavo Petro, a former rebel who sword in as the country’s first leftist president in Colombia.
Petro has said his first aim will be to introduce measures to combat hunger in Colombia, where nearly half of the 50 million inhabitants contend with poverty.
Coffee growers with a net worth higher between Ps2.736 billion and Ps4.636 billion will pay a wealth tax of 0.5% on their net worth . The progressive tax increases to 1% when their net worth is higher than Ps4.636 billion.
“The taxes will not be confiscatory, they will simply be fair, in a country that must recognize as an aberration the enormous inequality in the society we live,” Petro said in his victory speech yesterday.
Coffee growers whose monthly salary is also higher than COP10 million pesos will also pay a higher income tax.
According to Finance Minister, Jose Antonio Ocampo, the tax bill seeks to increase fiscal income by COP 25tn (1.7% of GDP) in 2023. In addition, measures against evasion would allow to achieve the target of COP 50tn by 2026, in line with the original Petro’s proposal.
Higher taxes on individuals including income taxes and the net worth tax are expected to bring in COP8.12 trillion in 2023, equivalent to 0.56% of gross domestic product.
Large coffee grower Pedro Echavarria said after analyzing the first draft he sees the fiscal reform as exagerated because it applies a double taxation-- 35% in income taxes, up to 39% in dividens and more 1% on the net worth. " For sure, the bill will be reduced otherwise, it will slowdown the economy and will affect employment," he told Coffee Network .
The bill is focused on the increase in the effective tax rate of higher-income individuals ( taxes will be not increased for persons that earn less than COP 10mn per month -USD 2,300-) through lower deductions/exemptions and the setting of a new permanent wealth tax for those with a net worth above COP 2.7bn, brokerage Credicorp Capital said.
“We expect an impact on total private consumption and investment due to the increase in the effective tax rates of high-income individuals and some productive sectors, although it would be partly offset by higher public spending and larger consumption from the segments of the population that will be benefited by the income redistribution programs. On the other hand, environmental and health taxes are set to pose a one-time effect on inflation, which adds to the current pressures on domestic consumer prices,” Credicorp added.
In addition, people with pensions above COP 10mn will be subject to income taxes.
Taxes on gold, oil, coal exports
The reform also proposes a tax of 10% on exports of crude oil, coal and gold. The share of the exports value to which the tax will be applied will be defined by: (spot price – threshold price)/spot price. The threshold price is 87 USD/ton for coal, 48 USD/bl (WTI) and 400 USD/oz. Thus, the total tax will be the result of applying the 10% tax rate to this formula multiplied by the total value of exports of each commodity. According to Ocampo this is part of a global trend that is aimed at allowing commodity producers to share part of extraordinary earning when global prices are high.
The tax bill will allow to support social spending to fight inequality, the ministry said.
Oil, coal and gold are the main sources of government revenue.
Taxes on corporates
Thee reform proposes the elimination of existing sectorial/regional benefits considered as asymmetric with the aim of reducing the horizontal inequality among the sectors of the economy. This includes to set a cap of 3% to total benefits over the taxable income, which currently benefits ‘mega-investments’, social housing, hotels, creative industries, among others.
The income tax for companies in free zones remains at 20% but the payment of this tariff will be subject to the compliance of certain targets in terms of exports. Otherwise, they will have to pay the full rate.
Land reform
Petro has not yet introduced the so-called land reform. Petro, a former mayor of Bogota, said to end extreme land inequality, he will slap a progressive tax on unproductive farms so that owners make their land productive, “otherwise they will be forced to sell them to the state,” reads his economic policy.
Opposing farmers have claimed this would open the door to the expropriation of private property. In Colombia, 96% of coffee farmers are small growers, who own on average 1.3 hectares.
By Diana Delgado
