Colombia’s government submitted on Tuesday a tax reform proposal that through the introduction of a progressive income tax, a reorganization on labor tax and a simplification of value added tax (VAT), seeks the creation of up to a million jobs and a lower gini coefficient.
According to the proposed reform of the long-criticized tax system, Colombia will introduce a progressive tax rate, according to Finance Minister Mauricio Cardenas.
The lowest income class, those earning less than $1,300 a month, will be exempted from paying income tax. The country’s middle class, earning between $1,300 and $4,400, will be paying an income tax ranging from 5% to 8%. Those earning between $4,400 and $11,000 will be paying 8% to 15% which is the maximum tariff.
With this new income tax, the government hopes to lower Colombia’s gini coefficient which measures inequality of a country, from 57.3 — the highest in Latin America — to 55.4.
Labor taxes for employers will be lowered from 29.5% to 16%. However, employers will have to pay 8% of the new “equality tax.”
The government additionally proposed to simply the Colombian VAT system, decreasing the number of VAT tariffs from seven to three, claiming that its simplification will lower administration costs for the government.
The tax reform is part of a wider range of government proposals aimed to decrease Colombia’s high unemployment and inequality rates.