Colombia’s Vice-President Jose Manuel Restrepo on Thursday presented an Economic Rescue Bill that seeks to reduce government spending and increase its revenue.
The bill grants extraordinary powers to President Abelardo de la Espriella to slash government spending by decree and includes a tax reform that includes higher sales tax rates on gasoline, coffee, cigarettes and vegetables.
The bill also includes tax breaks for corporations in an attempt to increase investment.
Abelardo’s extraordinary powers
While on campaign, De la Espriella powers vowed a 40% reduction of the State, which the bill falls short of doing.
Article 7 of the bill does grant the president extraordinary powers to “abolish, merge, and split ministries and administrative departments, as well as to determine or modify their names, objectives, and organizational structure,” and allows De la Espriella to “abolish, merge, split, and change the legal status” of other State bodies like the superintendencies, agencies, special administrative units, and public institutions.
Article 96 allows the government to change the personnel hiring of tax agency DIAN, which “would allow for the elimination of annual competitive exams for entry into the DIAN and a return to the practice of appointing thousands of officials,” according to former DIAN director Luis Carlos Reyes.
Last but not least, the bill mandates a 20% reduction in salaries of State employees, excluding the security forces, and cut half of the costs in temporary contracts.
VAT reforms and squeezing the middle class
The bill seeks to remove popular products like cocoa, coffee, sugar and fruits from a VAT exemption list and introduce a 19% sales tac on them.
An increase in taxes on gasoline will inflate its price.
The bill additionally seeks to charge VAT on vice products like liquor and cigarettes, which would make them up to 53% more expensive.
The bulk of these tax increases wouldn’t take fore until after the November 2027 local and regional elections in an apparent compromise to Congress and Colombia’s political forces.
In an attempt to not impoverish the poor, the bill seeks a mechanism that would refund up to 100% of IVA payments to some 19 million of the country’s poorest citizens.
The increased pressure on the middle class has already resulted in opposition from within De la Espriella’s congressional coalition.
Tax benefits for the capitalists
The government seeks to gradually lower the corporate income tax from 35% to 31% and offer a reduced tax rate for large companies that decide to invest in new enterprises.
According to the Inter-American Development Bank, a similar scheme introduced by former President Alvaro Uribe “was ineffective in promoting investment.”
