Colombia May Extend VAT Levy To Cover Pension Spending

by Leroy Baker, Tax-News.com, New York

01 July 2004

As part of a plan to prop up the country’s state pension system, Colombian President Alvaro Uribe this week announced a proposal to impose a 4% value added tax on many currently exempt items.

As the government unexpectedly revised economic growth forecasts upwards from 3.82% to 4%, the measure aims to take advantage of increasing economic activity to boost revenues flowing into the nation’s pension system.

"If this pension system collapses on top of us, it will use all of our reserves and one must pay retirees," Uribe remarked on Tuesday, forecasting that $630 million will need to be ploughed into the state pension system this year.

Three in four Colombians are not covered by any pension provision, be it state or private, and the President has in the past suggested extending a bare minimum entitlement to cover the majority of the population, if the current funding crisis can be resolved.

However, history suggests that Uribe’s VAT proposal will not be popular with opposition lawmakers and government allies alike.

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