Petro introduces reform to increase tax on higher earners and on oil and coal

The Minister of Finance of Colombia, José Antonio Ocampo, presented to Congress, on the first day of Gustavo Petro’s government, a tax reform project.

Ocampo said that “the reform has two main objectives, the first is to contribute to equality and social justice, and the second is to consolidate the fiscal adjustment”, and it is a priority for the new government.

The initiative is based on greater collection of taxes on individuals, the reduction of tax benefits for companies, the taxation of sugary drinks and the export of oil, coal and gold when they exceed a certain limit and the frontal fight against evasion and evasion.

“This reform that we are proposing generates 25 trillions of pesos per year (about R$ 29,6 billion), but we expect that, with the fight against tax evasion and evasion, this figure will rise to 50 trillion of pesos per year (about R$ 59, 2 billion), which was what was said during the entire presidential campaign”, highlighted Ocampo.

If the project is approved in Congress, where the Petro has a majority, the 29 trillions of pesos would be equivalent to 1,72% of the Gross Domestic Product (GDP) in 2023.

The reform bill presented to Congress consists of five points, the first being “a tax on individuals who earn more than 11 million pesos per month (about R$ 11, 9 thousand)”, a measure that also includes those who receive pensions above that amount.

“We do this basically by limiting the very broad tax benefits that these sectors have and also to correct some problems that are evident in our tax system”, the minister stressed.

Ocampo added that this proposal is complemented by a tax on the wealth of individuals who have more than 3 billion pesos (about R$3.5 million), which rises to 1% for assets of more than 5 billion pesos (about R$ 5.9 million).

“The second is the fight against tax evasion and tax evasion, which are very high, and the fight against these practices is very important”, he added.

The minister declared that, according to several studies, through evasion and evasion, the tax authorities lose “between 50 trillions and 80 trillions of pesos” annually, which is equivalent to between R$ 59, 2 billion and R$ 94,9 billion.

“In terms of corporate taxes, we will also limit various tax benefits and, additionally, improve the simple regime to capture many more small businesses, in an effort to formalize business”, he pointed out.

The third point of the reform is “a tax, a special contribution from the oil, coal and gold sectors, which are very important in exports, to that part of this benefit from high international prices is captured for the national tax authorities”, considered the minister.

“The tax rate The effective amount of this tax will be proportional to the size of the positive price cycle and the extraordinary profit generated by it”, details the text presented to Congress.

The reform includes as a fourth element “the tax on sugary drinks and ultra-processed foods with a high content of added sugars.”

Environmental taxation

The fifth point of the reform is of an environmental nature, called tax on carbon, which will be expanded to “internalize more effectively the social costs of the emission of greenhouse gases resulting from the consumption of fossil fuels associated with the development of the country’s productive activity”.

“Paradoxically, coal was excluded from the carbon tax,” said Ocampo.

The text presented today proposes “to change the basis of this tax, taxing the sale, import and withdrawal of thermal coal, and keeping coal excluded used in coke ovens”, and clarifies that this tax will only be applied for consumption i and excludes coal intended for export.

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