The Colombian government will increase taxes on alcohol, tobacco and gambling to pay for expected spending increases on state-run health insurance, Finance Minister Oscar Ivan Zuluaga said Friday.
The government will increase the value-added tax rate on locally made and imported beer to 14% starting on February 1 and to 16% starting on January 1, 2011, from 3% today, and will also increase taxes on cigarettes, liquors, wines and gambling.
“The government decided to focus on sectors that have financed health throughout the history of the country. They are what we call ‘vices’,” Zuluaga said.
The finance minister said that the proceeds from these tax increases will go to finance rising spending in health coverage in 2010 and beyond, so the effect on the government’s budget deficit will be neutral.
The Colombian brewing industry spoke out strongly against the increases.
“The finances of the health system are increasingly dependent on the brewing industry, which is inadequate, not to say unjust,” local brewer Bavaria SA said in a statement. The company will respond to the tax rise by cutting costs, including possible job cuts, said Nigel Fairbrass, spokesman for SABMiller PLC, which owns 98.89% of Bavaria.
“While we expect a modest impact on sales, we’ll take mitigating actions across the business to reduce costs and preserve profit growth,” Fairbrass told Dow Jones Newswires.
The Colombian government expects to report a consolidated budget deficit equivalent to 3.7% of gross domestic product in 2010, up from 2.7% in 2009.
Health and Labor Minister Diego Palacio said the government would “fortify measures against illegality” to prevent growth in the black market as people try to evade the new taxes.