Colombia is moving toward an important reform that businesses and investors have been calling for
Thomson Reuters
Colombian President Juan Manuel Santos announced on Friday that a long-awaited tax reform will be sent to the country's congress in October and that it should pass before the end of the year.
The news is likely welcome to many of Colombia's business owners and investors, as there was concern that such reforms would not get passed before the end of the year.
"Tax reform will be approved during this legislature, so it can come into force next year. It will be presented in October, there's more than enough time," Santos told business leaders at conference in Cartagena, according to Reuters. "There will be until Dec. 16, 20 to approve it."
The promised reforms — which, Reuters reports, will include a 3-point increase in the value-added tax — are seen as important both to shoring up the country's credit rating and to making life easier for the country's businesses.
A PricewaterhouseCoopers survey of Colombian business leaders and CEOs found that the country "needs to simplify its tax system and make it more competitive." Moreover, 93% "of Colombian CEOs saw taxes as a threat to business growth, compared to 69 percent worldwide."
Santos said one goal of the reform, which is still being analyzed, is to reduce the tax burden those businesses currently face.
According to Baker & Mackenzie, a law firm that focuses on taxes, Colombian taxes were higher than those in Argentina, Brazil, Chile, Mexico, Peru, and Venezuela. The firm found that adding traditional income tax and two additional taxes that are levied to fight inequality would amount to 40% of a business's taxable income.
Thomson Reuters
These reforms are also seen as important to protecting the country's credit rating. Bank of America said earlier this year that tax revenues would need to increase by 1% to 1.5% of GDP to stave off a credit downgrade.
"If next year we come to lose the investment grade, we would see an immediate exit of foreign investment," Camilo Silva, a founding partner of Colombian financial-advisory firm Valora Inversiones, told Colombian newspaper El Espectador.
"Of course there would be speculators" who would take on the risk, Silva said, "but the sound and sensible investor would exit because of this insecurity."
And tax reforms will likely play a part in financing post-conflict investments and programs that will be implemented after Colombia signs a peace accord with the left-wing Colombian Revolutionary Armed Forces (FARC) to end the latter group's 52-year war against the state — a deal toward which both sides are moving ever closer.
"Peace must also have an economic effort on the part of Colombians, as we will have to finance it" with new taxes, possibly brought about by tax reforms, Silva told Business Insider earlier this month.
"It’s important to clear the way for tax reform, whether or not the peace agreement is approved," Silva added, saying it was an issue that credit-ratings agencies were paying attention to.
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