The Washington D.C.-based World Bank on Monday signed an agreement with Colombia to provide assistance on the country’s tax collection.
After declaring a global priority on the reduction of poverty, the World Bank’s consulting project is targeted at easing the tax burden on owners of small and medium enterprises (SMEs) in Colombia, according to a press statement from the Ministry of Finance.
“The agreement with the World Bank fits into the vision of the national government to improve tax administration and collection,” said Minister of Finance Mauricio Cardenas. Tax collection in Colombia has jumped to $100 billion in 2013 from $65 billion in 2010.
According to the Ministry of Finance, the World Bank will provide technical assistance by providing international consultants to “simply and strengthen” Colombia’s tax system.
Despite a maelstrom of strikes plaguing the country’s economy at the moment, President Juan Manuel Santos has succeeded in establishing a tax reform that the World Bank has said will not only reduce tax burden on firms, but reduce unemployment too. Santos’ tax reform bill, which went into effect at the end of 2012, shifted taxation from labor to capital, which in turn incentivizes hiring.
MORE: Colombia tax reform ‘bold move’: World Bank
“Fiscal redistribution,” Chief Economist of the World Bank Lars Christian Moller informed Colombia Reports in an interview last year, “is the most means to combat income inequality and labor informality.”
But some factions of the Colombian Senate are disenchanted over the administration’s tax reforms. Senator Jorge Robledo, one of the most outspoken leaders of opposition to Santos’ administration, said the tax reform fails to be progressive.
Informal business and labor is high and persistent in Colombia, according to the World Bank. “When measuring informality of workers in terms of their contributions to health insurance and pension systems, 74.2 % of all Colombian labor force was considered informal in 2008,” reports a World Bank paper published in 2010.
The branch of the World Bank Group that is set to administer the consultation process for the Colombian government is the International Finance Corporation. It is set up as a corporation where its members are governments. The IFC was founded in 1956 with the strict purpose of investing in for-profit ventures to help reduce poverty and nurture development.
Sources
- Ministerio de Hacienda y Banco Mundial firman acuerdo de cooperacion tecnica para la simplificacion tributaria nacional (Finance Ministry)
- Banco Mundial ayudará agilizar el pago impuestos (Portafolio)
- Informality in Colombia: Implications for Worker Welfare and Firm Productivity (World Bank)
- International Finance Corporation (IFC)