Tax Reform Proposal Will Initiate Fiscal Debate In Colombia

• On April 15, Colombian Finance Minister Alberto Carrasquilla formally introduced a tax reform proposal to Congress.
• The proposal will seek an additional COP23.4Tn (2.0% of GDP) in annual revenues beginning in 2022 to help bolster public finances, as the fiscal deficit has widened significantly due to a drop in government revenues and higher spending during the pandemic. Fitch Solutions estimates that the fiscal deficit reached 8.3% of GDP in 2020, from 2.5% in 2019.
• The proposal, which would boost revenues by a greater amount than previously expected, will likely be a starting bid in negotiations between the administration, Congress, business associations, and civil society groups.
• While Carrasquilla and President Iván Duque have long advocated for fiscal consolidation, the administration stresses that the reforms will help finance higher social spending and public investment.
• Increased taxes will reduce consumer and business purchasing ability, however, it will generate more revenues for the government and higher social spending can replace the purchasing power lost by increased taxes. This move is meant to jumpstart Colombia’s economic recovery.

 (Source: Fitch Solutions & NCBCM Research)