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While the Ministry of Finance and Public Credit ensures that the Effective Tax Rate (TET) for businesses is 25.5%, the National Association of Industrialists (Andi) maintains that “unfortunately, in Colombia tax rates are not that low”, in the words of the union’s president, Bruce Mac Master.
According to Andi data, a study with more than 400 companies showed that 56.7% of company profits go to taxes. With the tax, the figure would rise to 62%, affecting the country’s competitiveness.
In this regard, the Minister of Finance, Jose Antonio Ocampo, assured that Andi’s and other analysts’ estimates are incorrect and published an analysis of this portfolio.
Also read: The entanglement of the tax and real estate annuities
This is the analysis of the Ministry of Finance of the income tax on profits that companies and their partners would pay jointly if the tax reform is approved: less than 30%. Corrects the incorrect estimates of other analysts. https://t.co/Je5yrmKd1p
– Jose Antonio Ocampo (@JoseA_Ocampo) September 21, 2022
The study carried out by the Ministry of Finance indicates that the Effective Corporate Tax Rate in Colombia is even below the nominal income tax rate (35%). According to said analysis, with the tax reform, the TET would remain at 29.4% and not 62%, as Andi says.
The tax benefits to which companies have access would be the main cause, especially the large ones, with revenues of more than $50,000 million a year. Ocampo explained that the other data is different because they omit tax benefits or have inaccuracies. It is worth remembering that the Government has said that the tax seeks to reduce unjustified benefits.
“In the case of the tax on dividends, the tax reform project reduces the burden for small and medium-sized companies, and only increases it for large ones. The foregoing is a consequence of the implementation of a marginal and progressive scheme on the taxation of dividends”, assures the portfolio.
Finally, the study mentions that the calculation of effective tax rates carried out by the OECD “shows that the corporate tax burden in Colombia is less than (or equal to) the rates of Costa Rica, Chile, Argentina and Mexico, and is close to the from Peru and Brazil.
Also read: The tax reform and the announced labor project would stop investment
After the Government released the results of its study, Bruce Mac Master assured that after analyzing the Ministry’s calculations, technical differences persist.
With judgment we study the calculation made by @MinHacienda tax rate. We have important technical differences. here are the reasons
The basic questions are how many total taxes does a company or an entrepreneur pay? How much will it affect employment? pic.twitter.com/VCY6iNMx1h
— Bruce MacMaster (@BruceMacMaster) September 22, 2022
For the president of the union, the central question is how many taxes do companies pay? In a statement, Andi asked the Ministry to reveal the full study, broken down by sector.
“We see that the report from the Ministry of Finance does not contradict the numbers presented by Andi because it compares figures that are not comparable. While the Ministry shows effective rates only for income (affected by two taxes), Andi uses the methodology of government take for its calculations, which includes all taxes, fees and contributions”, says the document.
The union maintains that any analysis of the tax effect must take into account all the taxes that are paid: “the relevant question to be resolved from the point of view of tax competitiveness will always be: how many taxes are paid when developing an economic activity? For an investor, it is essential to make informed decisions in the evaluation of projects and this involves calculating all the obligatory levies required by the State to operate: the ICA, GMF, property tax, contributions to superintendencies, public lighting, occasional profits, stamps, taxes assumed on fuel, etc.”
One of Andi’s main arguments is that income tax is just one of the many that employers pay, which is why the union asks the Ministry to take this and other technical objections into account in order to have an analysis that allows measure the impacts of the tax.
This is a pulse that, without a doubt, will continue in the midst of the discussion on the reform.
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