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Government
proposes tax reform.
In mid-September, the Pastrana administration submitted a tax reform
proposal to Congress as part of its efforts to rekindle structural reform
efforts agreed to with the International Monetary Fund (IMF) under the
terms of the US$ 2.7 billion credit facility. The tax reform
proposal is integral to the government’s larger plan to remove
structural impediments to improvement in fiscal balances. The
administration is also concerned about the increasing dependence of the
central government on sporadic income flows from privatisations, state
enterprises (principally oil) and licensing to private enterprises as well
as debt issuance. The share of tax income has dropped from over 75%
of total central government income in 1990 to just 44% in 1999. The
adoption of new tax measures is expected to raise tax income by 1.8% of
GDP next year or approximately US$ 1.5 billion. Key measures
included in the current proposal include:
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raising the financial transactions tax from 0.2% to 0.3% next year;
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transforming the current sales tax into a uniform sales tax by
incorporating items currently subject to different tax rates, including
advertising, certain food groups and airline tickets among others;
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lowering income taxes from 35% to 32% if current exemptions, including
those on public services and levels of taxable income for workers, are
eliminated; and
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measures to combat tax evasion and strengthen enforcement.
While
reforms to the current pension and regional transfers system remain
outstanding, the government’s tax reform proposal, if successfully
implemented, could serve to provide an improved backdrop for more
sustainable fiscal balances in the future.
Note:
The above text is an abridged version of the LatinFocus Consensus Forecast
briefing on Colombia. For more details please click here.
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