Petro’s New Tax Reform: A Step Back for Colombia’s Economy

The Colombian government’s latest tax reform, led by⁣ President Petro, ‌aims⁢ to collect 12 billion pesos from its citizens. However, this move is ​expected to have a negative⁤ impact on the ‌economy, particularly ‌on small businesses and entrepreneurs.

The Impact ⁤on Small Businesses

The so-called “healthy taxes” have already increased by⁣ 15% on around 70% of the products ‍sold by​ neighborhood shops. Starting in January, this tax‍ will rise to 20%. Additionally, the new amendment increases taxes on small businesses, making it even more challenging‌ for them to operate.

The Simple‍ Tax System: A Thing of the Past

The Simple ​Tax System, created in 2018, was designed to increase formality with a simple, unified, and easy-to-pay tax. However, with the new reform,⁤ this system will disappear, and small businesses will ‍have to pay higher taxes, including a 20% and 27%⁢ rental rate.

A Step Back ⁢towards Informality

According to the Employment Mission,⁣ Colombia has 7.1 million companies, with 5.8 million (81.7%) being informal. The ​government’s attempt to formalize the economy​ with more taxes and paperwork for small entrepreneurs is likely to drive them back ⁣towards informality.

The Benefits of the⁢ Simple Procedure

The simple procedure achieved an increase in annual registrations of 32%, reaching 155 thousand in June 2024. Of those, 69⁤ thousand did not even have a RUT​ at⁣ the time of ​registration. This formalization has benefited the State, with a collection ⁣of 1.8 billion pesos in 2024 and 5.5 trillion⁤ pesos since 2019.

Carbon Tax Increase

The tax reform also increases the carbon tax, which will be reflected ⁣in the‍ increase in fuel costs. Preliminary estimates establish that the tax on ACPM will go⁤ from $211 to $753 per gallon, on gasoline from $186 to $659, jet fuel for aircraft from $254 to $658, and natural gas from $39 ⁢to $168.

Environmental Concerns

The government’s decision to ‌redirect 66% of the carbon tax⁣ revenues to the national budget, leaving ‌only 34% for environmental programs, is ⁣a step back for the country’s environmental goals. Additionally, the increase in VAT⁣ from⁤ 5% to 19% on hybrid vehicles will⁤ discourage investment in sustainable energy.

Financial ⁢Rule ‌Changes

The government’s​ changes to the ‌financial rule, including the removal of a limit for 2025 and the exclusion⁣ of “energy transfer” ‍projects from the calculation, will create uncertainty and discourage investment in the economy.

A Call for Responsible⁣ Governance

The government must be responsible and not ask Colombians to pay more. Instead, they must deliver profound‍ reform that reduces bureaucratic expenditure and promotes⁣ economic growth.