Colombian President Santos Proposes Tax Reform

On October 19, Colombian president Juan Manuel Santos’ administration submitted a tax reform bill to Congress aimed at boosting revenue by increasing taxes and closing tax loopholes. The reform comes as Santos attempts to renegotiate the peace deal with the rebel group FARC that voters rejected earlier this month. The most important components of the tax bill are an increased value-added tax (VAT), jail time for tax evaders, a flat 32% income tax, and fees on dividends. It proposes to expand the tax base by increasing the number of filers of income by 500,000. In addition, the reform attempts to protect low-income Colombians through VAT exemptions and tax refunds.

The combination of low oil prices and an increasing budget deficit indicates that without tax increases, Colombia faces a potentially disastrous downgrade of its credit rating. A downgrade would make it harder for Colombia to access international credit, threatening Santos’s goal of implementing programs to bolster poverty-stricken rural areas.

Mauricio Cardenas, Colombia’s Finance Minister, warned of “serious problems” if the reform fails to pass. However, there are many obstacles to the bill, not least of which is Santos’ lack of political capital due to the rejection of the peace agreement he still champions. Perhaps most significant, though, is former president and current senator Álvaro Uribe’s continued opposition to Santos through criticism of the tax reform bill. Uribe was the main spokesperson for the “No” campaign on the peace referendum with the FARC because, he believed it to be too lenient toward FARC guerillas. Uribe’s opposition to Santos’ tax reform could prevent its passage just as his opposition to the peace deal contributed to its defeat in the referendum.

Despite the complexity of Colombia’s political situation and the many obstacles in the path of tax reform, Congress must arrive at a decision on the lengthy bill by December 16.