Tax reform in Colombia: Financing Law

The Ministry of Finance and public Credit of Colombia presented the Financing Law on September 10, 2024 , an ambitious tax reform plan designed to strengthen the country’s fiscal framework and stimulate the economy. This law aims to increase tax revenue and align fiscal policy with sustainability and economic reactivation goals.

Below are the main modifications proposed by the current National Government in what would be its second tax reform:

Measures to increase tax revenue

The project proposes a series of reforms to improve tax collection and finance the national budget starting in 2025. The main measures include:

• Corporate income tax: A progressive rate scheme for companies is introduced, with rates ranging from 27% to 34% based on taxable net income. This approach aims to reduce the tax burden on small and medium-sized enterprises and encourage investment.
• Wealth tax: The threshold for the wealth tax is lowered from 72,000 UVT to 40,000 UVT. This adjustment seeks to increase the taxpayer base and improve fiscal equity.
• Environmental taxes and online gambling: A carbon tax is established to finance environmental projects, and VAT is extended to online gambling, correcting existing distortions in the tax system.

Climate action and sustainability

The law also incorporates initiatives to promote sustainability:

• Green treasury bonds: Green treasury bonds will be issued to finance energy transition and environmental protection projects.
• Incentives for green investment: Tax incentives will be offered for investments in renewable energy and clean technologies, promoting sustainable economic growth.

Strengthening tax oversight

The reform also addresses improvements in tax oversight:

• Elimination of the simple taxation regime (RST): Starting in 2025, this regime will be eliminated, transferring taxpayers to traditional systems.
• Increase in income tax for individuals: The maximum rate for income tax and occasional gains will be increased.
• Strengthening electronic invoicing: The incentive for the use of electronic invoicing will be increased, improving transparency and reducing tax evasion.

Impact and projections

The project estimates an increase in revenue of $12 trillion pesos for 2025 and a real GDP growth of 0.4% in the same year. These reforms aim not only to improve the tax system but also to boost investment and employment, aligning with the government’s social and environmental commitments.

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