While the Colombian government is moving forward with the design of a bill to boost the long-awaited economic reactivation, much of the debate in the country has focused on the relevance, or not, of lowering the corporate income tax from the current 35% to 30%—set in the tax reform prepared in 2021 by the administration of conservative Iván Duque. This is the highest rate within the ranking of the Organization for Economic Cooperation and Development (OECD), a club of 38 middle/high-income countries that accounts for 50% of global gross domestic product.
The Minister of Finance, Ricardo Bonilla, has hinted at his support for the proposal. The task of leveling the deficit in public accounts, however, is urgent and poses a delicate context for landing the adjustment on a niche of revenue that, adding companies and individuals, in 2023 contributed 53% of the total income. The Government, in urgent need of liquidity to guarantee the stability and execution of its social policies, is in a dilemma: how to stimulate companies and trade without harming their income?
For Brandon Espinel, an academic and Master in Taxation from the Universidad de los Andes, the discussion in Colombia has focused on a flood of arithmetic exercises that are limited to proposing tax increases or decreases for certain sectors depending on the situation: “Tax collection should be the response to a broader economic planning of the State. Naturally, to the development of private investment, to the strengthening of the market and of competitiveness.”
For this reason, although he defends the current official project as a probable dynamo for companies, he stresses that the solution to the budgetary problems cannot always revolve around an accumulation of fiscal adjustments. “The answer goes beyond these temporary announcements and has to do with rethinking, reflecting on the exacerbated increase in public spending, in the functioning of the State. And verifying whether reasonable parameters have been established in the medium and long term,” he adds.
He also clarifies that this is a trend that several governments have already followed. Total public sector spending has tripled in the last two or three decades, while taxes contribute proportionally less and less to cover it. Luis Orlando Sánchez, partner in the International Tax division at the consulting firm EY, recalls that Gustavo Petro’s government, for now, has only talked about “a stimulus package”, rather than a reform per se: “The final text must be read carefully, because there has also been talk of the creation of new green taxes or the issue of forced investments for financial institutions.”
In the absence of further clarification, it is known that the Treasury project and the anti-crisis proposal will be submitted on July 20 for processing in Congress. Sánchez anticipates that the cuts to companies could fit as a negotiating tool to push through other measures. “It may, for example, include some modification to the fiscal rule or remove special regimes. Or we will have to see if it will be accompanied by the elimination of the few tax benefits that remained from the 2022 reform for some companies.”
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There is no doubt that the British consultancy and multinational is looking with apprehension at the official announcements. Sources at the Treasury state that, although the cuts have not been included in the first draft of the reactivation law, ministry technicians have put on the table a formula to apply it gradually over a period of two years. The change, in any case, is on the agenda and there is a high degree of consensus that it would be an urgent signal to accelerate the engines of the business community.
The decision to include it in the project that will be submitted to the legislature depends on the impact on state resources. “Just like in the administration of a house, the question cannot be limited to how to increase sources of income. Colombian society must also begin to debate whether it is also necessary to cut back on the use of energy and water,” explains Brandon Espinel. For former Finance Minister José Antonio Ocampo, the debate is not easy to define and any reduction would have to be accompanied by “other regulations that increase revenues,” he posted on his X account.
In his opinion, the proposal is unviable: “The tax reform that should be carried out is that of departmental and municipal taxes. It is a contradiction that, in contrast to national taxes, which have been the subject of multiple reforms, the last most important one at the territorial level was 40 years ago,” wrote Ocampo. A thorny issue for a country whose administrative decentralization ran aground as an unfulfilled desire enshrined in the 1991 Constitution.
It is unlikely that this Government, however, will waste time or political capital on such a complex issue: “The climate, two years before a presidential election, is not conducive to talking about income or territorial autonomy. It is true that the departmental tax regime is a mess. But even if it were clarified, that will not solve the fiscal problem or the problems we have in economic reactivation.” Any fiscal decision taken by the Petro Government, in any case, will take effect during the transition to the next Administration that occupies the Nariño Palace starting on August 7, 2026. That is why it will be a surgical operation that, sources agree, must transcend ideological issues.
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