Bogotá — The tax reform planned by Colombia’s President-elect Gustavo Petro’s Finance Minister José Antonio Ocampo will focus on eliminating benefits, but also, on targeting those companies that do not currently pay tax in the country, including non-domiciled digital platforms such as Netflix and Spotify.
Ocampo spoke to Bloomberg Línea about the reform proposals, and which are expected to be submitted to Congress on August 8, the day after Petro takes office as the country’s first left-wing president.
“The idea is to present it on August 8, but we are reviewing some legal issues,” Ocampo said.
One of the most interesting issues is the so-called “digital economy”, a segment that was targeted for taxation by the failed 2021 reform proposed by Alberto Carrasquilla, now co-director of the Bank of the Republic.
Ocampo explains that the incoming administration aims to evaluate the mechanism through which companies such as Netflix, Uber and Spotify, among many more, to contribute tax to the Colombian economy.
“We are analyzing how, when the size of sales of one of those companies in the country reaches a certain level, it will be considered to have Colombia-domiciled status. We are looking at what level of income” would signal that, Ocampo said.
He explained “it is assumed that a company would have a branch [in Colombia] when it reaches a certain level of sales, and that is an issue that has been the subject of much international debate in this digital era, and we are going ahead with it in this reform”.
What is yet to be defined is the level of income that such platform must generate from Colombia in order to be considered as a tax resident, however.
Ocampo said this discussion is part of the debates and agreements that have been reached within the OECD.
“We are going to introduce some of the rules of what was discussed and agreed last year in the so-called inclusive framework of the OECD, and we are going to take some of those measures,” he added.
Ocampo had already clarified that occasional profit tax is going to be increased, and that the incoming government’s proposal will be to raise it to 20%. However, regarding the exemptions that such tax would maintain, nothing has yet been decided.
“We are analyzing it. We are going to lower the total tax benefits for both individuals and companies, but with the specific issue of ‘occasional profit’, we are looking at what to do”.
There has been expectation regarding the income tax rate to be proposed for companies, since for years people have bemoaned that this tax in Colombia is very high compared to other countries in the region. However, Ocampo clarified that, for now, a reduction is not planned as part of the reform proposal.
“We hope in the future, if the tax reform is successful in terms of collection, to make a proposal to reduce the corporate income tax rate, but not now, because the uncertainty is very great,” he said.
Among other issues that interest companies, Ocampo said “we are going to eliminate some sectorial benefits as part of what we are going to do regarding corporate income tax”.
Previous reforms have attempted to create incentives for foreign investment in Colombia by eliminating taxes, but Ocampo is not planning such a move.
“It is not on the agenda to eliminate taxes on foreign portfolio investments, and we are going to make a proposal for a maximum deductible VAT on capital goods,” he said, adding that there will also be a proposal to tax large estates, and “there will be no presumptive income, because if there is a wealth tax, which we are going to propose, it would not make sense”.
Ocampo is proposing a wealth tax with a threshold of $2 billion, and the initial rate will be 0.25%, increasing by up to 1% for wealth of $5 billion and over.
Taxes for the financial system will remain the same under the incoming governments’ proposals, Ocampo said.
Expanding the green tax
But those who will have to make a greater contribution to the treasury are the big polluters, that is to say, with a focus on so-called ‘green taxes’, he added.
“Green taxes will be expanded to include coal, which paradoxically is not covered today. The current rates will be maintained, but they will be extended to emissions that were excluded,” Ocampo said.
“We are discussing whether there will be benefits for carbon neutral companies,” he added.
Likewise, Ocampo did not rule out raising taxes on dividends, but assured that he will be very careful not to affect the market in Colombia.
“We are discussing taxes on dividends, but we are going to avoid the expansion of double taxation,” he said.
Finally, the requirements for companies to access tax benefits in the country’s free-trade zones will be tightened, he said.
“We are going to impose export requirements on tax-free zones. They [companies] have to export a minimum proportion of their production, and they will not be able to sell in the domestic market, as many companies now do. If they do not comply, they have to renounce their free trade zone status, and we understand that this would not have any legal impediment,” Ocampo said.
Translated from the Spanish by Adam Critchley