Colombia Raises 'Sin' Taxes As Emergency Measure

by Mike Godfrey, Tax-News.com, Washington

26 January 2010

Colombian Finance Minister Oscar Ivan Zuluaga has announced a plan to increase taxes on alcohol, tobacco and gambling to pay for emergency spending on the state-run health system.

Under Decree 127 of January 21, and with effect from February 1, 2010, the following tax rises will be applied through VAT:

• Beer tax will increase from 3% to 14%, rising to 16% in January 2011.
• Other alcoholic drinks will be subject to a graduated tax depending on whether it is more or less than 35 degrees proof, the resulting tax increases being potentially up to 205%.
• Betting taxes will rise from 5% to 16%, including on slot machines and the lottery.
• Cigarette prices will increase by COP650 (USD0.33) per 20 pack in 2010 and COP700 in 2011, 21% of which will be applied to health expenditure in 2010, rising to 24% in 2011.

By these means, the government expects to raise an additional COP193bn (USD100m) from beer, COP60bn from other alcohol products, COP146bn from gambling, and COP175bn from tobacco products.

These measures have been expedited following the "Social Emergency" declared in December 2009. According to Zuluaga, the country's healthcare system needed at least an extra USD400m to prevent collapse.

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