On October 22, the Minister of Finance of Colombia, Alberto Carrasquilla, presented to the General Secretariat of the House of Representatives a Financing Law bill. The bill contains 12 fewer articles than the Financing Law passed by Congress in 2018 and since declared as unconstitutional. According to Carrasquilla, the reduction of the articles is due to the fact that the already passed legislation on tax normalization renders them redundant while the need for other articles to be resubmitted no longer exists. “We hope with great enthusiasm that discussions will begin so that we can rapidly have a tax law in line with what was approved last year,” said Carrasquilla. The bill was presented with a status of urgency, meaning it will be studied by the joint Economic Committees of Congress. Legislators must pass the law before the end of the year.

The presentation of the bill to Congress comes after the Constitutional Court, on October 17, declared the Financing Law passed by the National Congress at the end of 2018 to be unconstitutional. The high court explained that it based its verdict on the existence of flaws in the approval procedure of the text in the House of Representatives. The Court’s decision will come into effect on January 1, 2020, which gives the government until December 31 to push through a similar law in Congress.

What does the new funding law propose?

The new bill introduced in Congress maintains the following points of the previous Financing Law:

• It creates a new tax on financial services. This tax excludes commissions received for the use of credit and debit cards as well as foreign exchange operations of purchase and sale of foreign currency and operations on financial derivative instruments. In financial services, the tax will be determined by applying the tariff to the taxable base. This will be integrated in each operation by the total value of the commissions and other remunerations received by the person responsible for the services rendered, regardless of their denomination.
• Gradually reduces income tax for all companies. It went from the current 33% to 32% in 2020, 31% in 2021 and 30% from 2022.
• It modifies the gradual decrease in presumptive income from the current 3.5% to 2.5% in 2019, 1.5% in 2020 and 0% from 2021.
• It stipulates a 50% discount on the Industry and Commerce Tax (ICA) from 2019 and a 100% discount from 2022. The deduction would become effective at the time of declaring the income tax. The ICA depends on the municipalities and, in the case of commercial activities and services, stipulates a monthly tax of between 0.2 and 0.10% to the monthly average of gross income obtained in the previous year.
• It creates the unified tax under the simple taxation regime (SIMPLE), the tax is an optional taxation model in substitution of the income and complementary taxes, the consumption tax, the industry and commerce tax, in order to simplify the tax system and promote the generation of employment. SIMPLE will be optional for natural and juridical persons, but foreign juridical persons (or their permanent establishments), entities that are affiliates, subsidiaries, agencies, branches, of national or foreign juridical persons and companies that are not financial entities, among others, will be excluded.
• For SIMPLE taxpayers, income from the sale of goods or services through credit and/or debit card systems and other electronic payment mechanisms will generate a tax credit (or discount) equivalent to 0.5% of the income received through this means, according to certification issued by the acquiring financial entity. However, this discount may not exceed the total tax burden payable by the SIMPLE taxpayer.