I believe any mature, democratic government should welcome feedback from its citizens on its actions (good, or bad). Indeed, I believe it should be normal civic duty of citizens everywhere to report their findings lest the governing bodies plead ignorance of shortcomings. I apply this principal here regarding the actions of Colombia’s tax office DIAN in two areas of public interest:
Devolución del Iva (2%): VAT Refunds
Many people in Colombia are unaware of this tax benefit which is available to everyone with a bank account simply for the asking. For those who do not know it is a measure introduced by the Colombian government some years ago to stimulate the economy by encouraging public consumption. In short 2% of the Iva (VAT) paid via bank account credit and debit card transactions are reimbursable on a comprehensive list of products (such as most food items).
Unfortunately you have to know about this benefit as you have to apply for it…..or you don’t get it, which was my case for my early years in Colombia. Since then it has proven to be a welcome “economy” to me as the regular refunds were paid into my bank account.
But did I just refer to “regular refunds”? Error, they are no longer “regular” and I wonder what Mr. DIAN is up to?
The DIAN regulations specify to the best of my knowledge that refunds of this Iva are to be made on a quarterly basis in the month following the end of every quarter. This practice seems to have worked very well up until recently. Now no refunds have been made since mid 2011 if my experience is typical, a backlog of approaching 7 months if I am correct? In my case the outstanding Iva refund is about COP 400,000, not peanuts and surely a very considerable sum of money on a national basis if repeated on the millions of persons potentially involved.
The DIAN did apparently acknowledge this delay way back in October 2011 when promising refunds for the delayed 3rd quarter 2011 in November (rather than October)…..but we are still waiting! Is this an indication of a serious problem within the DIAN, or worse still, the governmental cashflows? Hopefully this is not another case of the “Sovereign Debt” epidemic being imported from Europe to Colombia. Be careful Mr. DIAN; you are answerable to your citizens and Debt Ratings Agencies (S & P’s, etc) are ever willing to find new customers.
Transaction Tax (GRM @ 0.4%)
And again Mr. DIAN, why this tax? Are you sure it is helpful when applied to much needed investment effort?
Transaction taxes are all the vogue at the moment and Europe is in the throes of agony deciding whether or not to implement it. Certainly this form of taxation has found favor in Latin America where it has existed for many years and is beloved by governments for its ease of collection (the banks do the unpaid work for them), and hated by industry and business as a disincentive to needed investments.
However, generally I feel its incidence on the ordinary members of the public has been overlooked by the Colombia government and needs to be re-examined.
This tax potentially hits every member of the public depending on their levels of expenditure. In simple terms, every withdrawal of funds from your financial accounts (Bank accounts, Carteras, etc) will be taxed at 0.4% once a minimum threshold has been exceeded. You do not have to be a millionaire for this to apply and it now comprises an important element of fiscal income to the Colombian government.
So, should we bother? Is it just another tax to bear? Well I suppose it should be if it does not have any other negative incidences on the public interest….in this case, the general public interest to promote savings and investment and help create a solid foundation to the economic health of the nation and its individual citizens.
What are the practical implications? Well, who likes being hit by the same tax from all directions?
Let’s say you decide to try to save a bit of money for your older years or a specific project. You would think the government would applaud your effort and perhaps encourage you, wouldn’t you? But “No”.
Instead the Colombian government finds it appropriate to tax such endeavors on every step of its investment path irrespective of the fact the same money is being taxed over, and over , again.
A typical example; you decide to buy a few Ecopetrol shares, a civic action recommended by the government. So you transfer the funds necessary to fund this operation from your bank to the broker (Commissaire de Bolsa). This is your 1st confrontation with the tax which will be charged by your bank. Let’s say these funds are temporarily paid into an interest bearing account with the broker pending payment of the shares. Consequence: this will constitute yet another taxable “transaction” when it is withdrawn for payment of the shares despite the fact the taxable “source” is the same money.
In fact you can find the same “merry go round” involving the taxable pursuit of the same money in many similar circumstances. Hardly an incentive for the average citizen to save money is it?
So dear Mr. DIAN; what are you up to? Are the above simply examples of your not keeping an “eye on the ball”, or, more worryingly, are they intentional strategies to optimize governmental revenues and cashflow without drawing too much attention?