On July 13, was held the Socialization of the Great Consensus of the Social Investment Bill, an event attended by the Minister of Finance, the President of the Republic, governors, regional mayors, business leaders, trade union representatives and leaders of different political parties, in support of the new tax reform. With this proposal, the Government seeks to address three challenges: to provide relief to the most vulnerable citizens, to sustain public finances and to boost economic growth. The bill will be presented to Congress on July 20, and is expected to be approved in August. In the following link you can replay the broadcast of the event.
The text, which would not exceed 35 articles, will seek that the private sector and Colombians with higher incomes contribute more to the State’s coffers, and thus raise 15 trillion pesos (USD 4 billion), 10 trillion less than in the reform that was withdrawn on May 2 after the beginning of protests in the country.
The reform has two main lines: social investment and increase of resources. Regarding the first point, the extension of subsidy programs will be sought with the increase in tax collection. The Solidarity Income, the Formal Employment Support Program (PAEF in Spanish), the Zero Enrollment and the Youth Employment Boost will be fundamental for this bill to go through the discussions in Congress with the greatest support possible.
- Solidarity Income: It is proposed to extend the program until 2022, maintaining the current beneficiaries and expanding its coverage to 200,000 extremely poor households that currently do not receive any government benefits.
- PAEF: the bill will extend the coverage of the subsidy to the payroll of microenterprises (less than 50 workers) and will include individuals who generate at least two jobs.
- Zero tuition: the government aims at permanent free university tuition for students from socioeconomic strata 1, 2 and 3 in the country’s public universities.
- Boosting youth employment: the government will subsidize 25 percent of the first minimum wage of workers between 18 and 28 years of age who are hired by companies.
Regarding the second point, the bill seeks to increase resources without increasing the tax burden on large sectors of the population. As we mentioned in previous emails, the new reform will not increase the taxable base nor will it increase the VAT.
Corporate income is expected to be the main source of revenue in the new bill. The main measures in this regard will be:
- 50% reduction of the tax benefit that allows companies to deduct the industry and commerce tax (ICA in Spanish) from their income tax.
- Increase in the corporate income tax rate from 30% to 35% starting in 2022.
- The extension of the surtax to the financial sector of 3 percentage points from 2022 to 2025.
- Dismantle the benefit of the income tax graduality for legal entities, as well as part of the benefit of having reached 100% of the ICA discount in the income tax. It is expected that such collection through income tax will not be only 50 percent.