Ashley Friedman photo
Colombian Tax Reform: An Essential Step Towards Long Term Economic Strength

Over the last decade, Colombia has steadily embarked on a path towards becoming one of the leading economies in Latin America. Colombia is in the midst of a remarkable transformation that stands to improve the lives of its citizens and set a standard for its neighbors in how to compete effectively in a global economy. In the coming weeks, we expect the Colombian government to take the next step in this work by introducing a number of additional reforms to its tax system. ITI applauds this effort. We encourage the government of Colombia to clarify and update its tax system to realize additional economic growth because, as the Organisation for Economic Cooperation and Development (OECD) illuminated in its January 2015 Economic Survey of Colombia, the country needs such reforms to boost investment and diversity its economy.

Smart tax policies are a critical component to reaching Colombia’s economic potential. As mentioned above, organizations like the OECD as well as analysts have noted that Colombia’s current system places an extraordinary burden on its businesses with an effective corporate tax rate hovering around 40 percent. Further, when you add up different corporate taxes with other levies the tax burden on some companies can be as high as 60 percent of net revenue, making the country an outlier in comparison to other economies.

We are greatly encouraged by the drive to reform the current system. In anticipation, ITI member companies hope to see a few key pillars reflected in the updated system. Countries that pursue such policies can better compete as thriving incubators for innovative firms.

  • First, as the OECD recommends, Colombia should lower its corporate rates to better encourage investment. Past efforts have attempted to hold the effective rate at 25 percent.
  • Second, and in tandem with a lower rate, Colombia should address structural issues in its corporate tax regime by streamlining current taxes and exemptions. In the end, businesses of all types should face a similar tax bill.
  • Finally, the updated tax code should not discriminate against certain activities or create an undue tax burden on digital services or the sale of devices, which can restrict digital inclusion and connectivity.

Setting the right tax policy has the potential to unleash unprecedented growth so Colombia can benefit from the interconnected nature of the global economic system. Constructive tax reform can empower local entrepreneurs and companies to succeed in the global marketplace if policymakers draft a tax code that taps the dormant potential to create more opportunities for growth and investment throughout the Colombian economy. Tax reforms should make the Colombian market more competitive and encourage further innovation, rather than inadvertently stifle it by restricting access to the technologies and information that powers dynamic innovation.

Colombia is poised to position citizens, consumers, communities, and businesses of all sizes to benefit from the digitally-fueled economic engine that enables incredible growth and opportunity around the world. In order for this to be done, mobile phones, computers, tablets, and other devices should not be viewed as luxury goods, but as fundamental tools necessary to participate in the global economy. Guaranteeing low cost access to the internet and internet-enabled devices is a critical tool for social and economic development, and we encourage the Colombian government to make these devices and services as accessible as possible in order to bridge the digital divide and achieve their robust connectivity goals.

Public Policy Tags: Tax Policy, Trade & Investment