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Economy

Colombia wealth tax only temporary, govt proposes in response to employers’ concerns

by David Wing

The Colombian government has made concessions to concerned business leaders over a controversial new wealth tax, stressing the tax is only temporary, business association ANDI said Wednesday.

Bruce Mac Masters, president of the National Association of Businesses in Colombia (ANDI) announced on Wednesday that after a late-night meeting with President Juan Manuel Santos, that the Colombian president had agreed to concessions regarding the 2015 budget.

“There was good news, the decision of president Santos to do tax reform next year, as we requested it,” the business leader said on Blu Radio.

Taxing profit, not capital

The ANDI had previously expressed its concern over the wealth tax, claiming “employers prefer paying taxes on profits and not on capital.”

The promised permanent tax reform would be a structural overhaul designed to get away from Colombia’s current criticized system of a tax reform every 17 months.

Mac Masters also said that the reform would seek to find solutions for perceived issues such as the wealth tax, a system of taxing wealthy based on worth rather than annual income, by as early as 2015. A too high wealth tax, the business leader told El Tiempo earlier, could detract investors.

“Employers prefer to be taxed on profits rather than capital,” Mac Master told the newspaper. In a different interview, he had said the tax was “”harmful and hardly convenient for the country’s growth.”

MORE: Breaking down Colombia’s tax reform and new wealth tax

Javier Diaz of the National Business Council expressed concerns of the wealth tax reaching up to 46% of an individual’s capital. The council has opposed government plans to seek to fill a $6 million hole in the 2015 budget using the wealth tax.

“We believe they should work to finance the lack of funds for 2015 and name a commission that works on a thorough proposal for the coming years,” Diaz told El Tiempo.

Other business unions such as Colombia’s Association of Micro, Small, and Medium Businesses (ACOPI) have promoted and supported alternative proposals, such as the one proposed by leftist Senator Antonio Navarro. This proposal would see taxation at 10%, beginning with a base of $42 million pesos.

According to ACOPI spokespersons, the “rich tax” would “discourage investment in productive sectors like agriculture and industry, promoting the import of goods and damaging the country.”

Leftist opposition slams concession

Master’s announcement of “good news” was rejected by opposition in a congressional debate on the same day. The debate was the first round of discussing the proposed reforms.

Senator Jorge Robledo voted no for his party, pointing out that “here [in Colombia] the largest companies operate and there are wealthy parties who are not taxed as they should be.”

He also claimed that the proposed reform was a scheme to significantly increase the Value Added Tax, Colombia’s sales tax, which would affect all consumers.

Senator Fernando Araujo of the Democratic Center opposition party claimed that the reform and Santos’ deal with ANDI was “no more than the fruit of improvisation.”

He further claimed that Santos’ plans were essentially illegal because they would result in a budget surplus.

“Law 179 of 1994 limits financial law up to the amount of the deficit. This project exceeds the amount of the deficit,” he said, claiming that the plan aims for $5 billion pesos above the $12.5 billion pesos needed.

Santos’ deal with ANDI could help ensure their support, which would be mutually beneficial as ANDI has been lobbying for a minimum wage raise in 2015. It would also allow Santos to not lose as much support from industry by doubling wealth taxes through adding the “rich tax” but promising to look into the eventual removal of the patrimony tax.

Sources