Colombia Court Shakes Tax Reform: Colombia’s Constitutional Court has struck down a portion of a law that prevented extractive companies from deducting royalties paid to the government from their taxable income. This decision benefits businesses but deals a blow to government finances. The rule was part of a tax reform initiated by leftist President Gustavo Petro’s government, aiming to fund programs addressing poverty and inequality. The court, in a statement on Thursday, declared the censored paragraph unenforceable.
The Finance Ministry anticipated collecting 3.38 trillion pesos ($829 million) this year with this measure, followed by 2.79 trillion pesos in 2024 and around 2.2 trillion pesos in 2025.
In response to the ruling, Finance Minister Ricardo Bonilla mentioned the exploration of the possibility of taking payment in kind, such as coal, oil, or other exploited resources. Bonilla explained that this potential workaround is being considered because natural resources don’t enter the accounting of those exploiting them, which differs from money, a key point in the court’s discussions.
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President Petro expressed his disagreement with the decision on social media, stating that the finance minister would need to cut the budget of the three branches of public power in light of this outcome. Political analyst Sergio Guzman noted that the ruling showcases the strength of Colombia’s institutions. The government now faces the task of reassessing its approach and making necessary adjustments.
Business associations and industry figures had criticized the government’s decision, and they celebrated the court’s ruling. The Colombian Petroleum Association (ACP) stated that the decision opens the door to attract more long-term investment and benefits for regions and the quality of life of Colombians.
Oil and coal play crucial roles in Colombia’s income through exports, taxes, and royalties. The outcome is seen as a boost to competitiveness, ensuring legal security for an industry that significantly impacts the progress and development of over 50 million Colombians, according to Juan Camilo Narino, president of the Colombian Mining Association (ACM).
Our Reader’s Queries
Does Colombia have a progressive tax system?
Colombia’s individual taxation system involves levying taxes on an individual or household’s income to support government operations. The tax rates are usually progressive, which implies that the more an individual earns, the higher the tax rate they pay. This approach ensures that those who earn more contribute more to the government’s revenue.
What is the tax reform in PWC Colombia?
The recent Tax Reform Law has brought about some changes in the withholding tax rates for dividend distributions. The cross-border dividend distributions now have a higher withholding tax rate of 20%, which was previously 10%. Similarly, the withholding tax rate for domestic dividend distributions has been increased to 10% from 7.5%. Additionally, the law now considers in-kind distributions of dividends in the form of shares as taxable income for the beneficiary. These changes have significant implications for businesses and individuals alike, and it is important to stay informed about the latest developments in tax laws.
Does Colombia have a territorial tax system?
The primary territorial taxes consist of industry and commerce tax, real estate tax, and registration tax, which are levied by the departmental and municipal authorities. These taxes are crucial sources of revenue for the local governments and are essential for the development of the region. The industry and commerce tax is imposed on businesses operating within the jurisdiction, while the real estate tax is levied on the value of the property. The registration tax is charged on the registration of legal documents related to property transactions. Understanding these taxes is vital for individuals and businesses operating in the region.
Do expats pay taxes in Colombia?
Residents, whether nationals or foreigners, are required to pay taxes on their income from all sources worldwide. This means that they must report any equity they own in Colombia as well as abroad. On the other hand, non-residents, whether nationals or foreigners, are only taxed on their income sourced from Colombia. Therefore, they are only required to report the equity they own in Colombia. It is important to keep these distinctions in mind when filing taxes in Colombia.