1. WHAT DOES THE CURRENT FISCAL REFORM ENTAIL
i) Tax on Individuals
A taxation system is being developed that is aimed toward those with greater income paying a higher effective taxation rate: IMAN (Impuesto Mínimo Alternativo Nacional), a system yielding a “progressive” taxation curve (higher rates for greater earnings) and establishing a minimum under which no one is to be positioned.
ii) Corporate Income Tax
Businesses currently paying a 33% income tax, will now pay this tax at a rate of 25%. A new tax called IE is also to be introduced, calculated on income at a rate of 8%. The sum of these two taxes results in the currently in force 33% tax rate.
The ICBF, the SENA and health system will receive fixed fees, with specific and exclusive application in the new IE tax. Both entities continue to operate within their current corporate government regulation framework, notably with worker and business-owner participation on the Sena executive board.
The taxes with which employment is currently levied will be reduced from 29.5% to 16%. This lower cost of employment will allow for an increase of formal employment in the amount of one million employees.
iii) IVA reform (VAT)
There are currently seven IVA tax rates: 0%, 1.6%, 10%, 16%, 20%, 25% and 35%, resulting in enormous administrative burden to businesses as well as to the DIAN. It is a complex system both procedurally and in terms of its comprehension. In order to simplify it, the proposal removes the rates of 1.6%, 10%, and all of those currently lying above 16%. A rate of 5% is also established, meaning there will be a total of 3 rates: 0%, 5% and 16%.
The rate on agribusiness production chain inputs will drop from 16% to 5% in order to relieve the tax burden due for collection by the enterprise and their payment will be deductible from the income tax. This removes the figure of cash returns and improves cash flow for businesses.
It will be acceptable for those selling goods taxed at rates below 16%, to deduct the IVA tax paid on their supplies, in their entirety. Restaurant services are being moved to the excluded category and a tax on consumption in the amount of 7% is introduced for this section. Finally, a tax on luxury consumption is created for goods currently set at 20%, 25% and 35% such that the total tax rates will remain at those levels, although now in the form a combination, namely of IVA and consumption tax. This allows for the elimination of 3 IVA tax rates.
iv) Occasional Income
There is a decrease in the tax rate for occasional earnings from the sale of assets owned for longer than two years, at 33%, to a rate of 15% for the sale of businesses and 10% for the sale of assets.
The aim is for people to pay this tax instead of devising complex and expensive avoidance measures.
v) Anti-evasion and anti-avoidance measures
This reform includes a set of regulations, in accordance with international standards, for the prevention of devices with which some companies might achieve more favourable treatment than others, all other factors remaining equal. A set of rules aiming to promote a greater culture of tax payment and to place the country on the track of other jurisdictions, more advanced in matters relating to taxation.
2. ¿WILL THE MARKET BASKET BE TAXED?
No, goods that are part of this basket will remain in the excluded and exempt categories. In fact, the IVA rate will be reduced, for the supplies used to produce these goods.
3. WILL MY TAXES BE RAISED?
There are some 4.6 million income-tax payers in Colombia. Of these, only 1.1 million file tax returns, and the rest pay through the wage-source deduction. For the majority of the 4.6 million, the income tax will decrease, since their deductions will drop until they reach the IMAN curve, the rates of which are below the levels currently paid today. For persons with greater income, however, there is currently a considerable group paying around 5% or less, in effective taxation (tax / gross income). In these cases there will indeed be an increase, reaching up to 15% as the maximum taxation rate with for individuals with earnings above or equal to 20 million pesos.
4. ARE PARAFISCAL CONTRIBUITIONS BEING ELIMINATED
No, a finance source of the SENA and the ICBF based on the salary tax paid by lower-wage workers is bein substituted by a utility tax, which does not punish job creation.
5. AND WILL THE ICBF AND SENA WORKINGS CHANGE IN ANY WAY?
No, the only change taking place is in one of their finance sources, but the bodies will continue to function as they do today. To highlight that your earnings will not be affected; a specific destination source is created in order to ensure this.
6. ARE BUSINESSES GOING TO PAY MORE TAXES?
Upon adding the effects of the reduced burden on salary and the creation of the IE tax, what one sees is a relief for those businesses with the most intensive performance, thereby stimulating formal employment.
7. WILL DIVIDENDS BE TAXED?
No, the payment of dividend taxes will be the same as before, meaning that the shareholders are only expected to pay tax in the case that their inherent profits have not been taxed through the company.