Poorly financed Tax change in Colombia worth $6.5 billion is a long way off
A tax reform package that intends to raise 26.3 trillion pesos ($6.54 billion) in 2026 to fund the budget for the following year and support the country’s faltering finances was presented to Congress by the Colombian administration on Monday.
With legislative and presidential elections approaching next year, the ambitious plan will have a difficult time in Congress, where President Gustavo Petro’s administration has little support.
The measures “will be of use to the next government,” Finance Minister German Avila told reporters, adding, “We are structuring a proposal that guarantees not only that we finance 2026, but that we are providing medium-term macroeconomic stability.”
According to the proposal, an extra 28.2 trillion pesos will be raised in 2027, and by 2030, that amount will have increased yearly to 37 trillion pesos.
A new 1% tax on the initial sale or export of coal and crude oil is one of many new taxes proposed by the law, along with an increased value-added tax (VAT) on petroleum products.
Additionally, it aims to increase taxes on cigarettes, alcohol, internet gambling, dividends, and wealth and high-income individuals.
In a dramatic change, the legislation would also levy taxes on the financial industry and impose taxes on churches, which are currently exempt.
Additionally, the government wants to increase tax collection and processing through its DIAN tax agency in order to gather 3.5 trillion pesos next year.
Analysts don’t think the bill will pass. “I see a low chance of it being approved because while a fiscal reform is being proposed, we are not seeing any proposal for better conduct in public spending,” commented Jackeline Pirajan, Scotiabank’s head economist in Colombia.
Following the government’s June suspension of the nation’s fiscal rule due to declining income, the proposal was made. The finance ministry was compelled by the suspension to increase its 2025 budget deficit target from 5.1% of GDP to 7.1%. 6.2% is the target deficit for 2026.
Colombia’s debt rating was subsequently reduced by S&P and Moody’s.
In July, President Petro issued a warning, saying the government would finance its budget with extra debt if Congress did not accept the reform.
In order to fulfill the 2026 deficit objective, Colombia’s independent Autonomous Fiscal Rule Committee (CARF) stated last week that a budget adjustment of 45 trillion pesos is required, which is significantly more than the government’s request.
