Colombian Government Renews Push For Corporate Tax Cut

by Mike Godfrey, Tax-News.com, Washington

07 July 2006

Colombia's Finance Minister, Alberto Carrasquilla has announced that the government is sending a bill to Congress that will cut the country's corporate tax rate by about 6.5% over the next two years, if approved.

Last December, Carrasquilla was forced to withdraw a similar proposal to slash the country's corporate tax rate because the idea lacked sufficient support in the legislature.

The official corporate tax rate in Columbia is currently about 38.4%, but temporary exemptions on corporate taxes for firms that reinvest their profits have lowered the actual rate to 28.5%, a move which has led to rising levels of investment.

However, a myriad of exemptions has made Colombia's corporate code increasingly complex, and Carrasquilla explained that the current bill will reduce complexity by stripping out about 1,200 articles of the tax code to leave only about 200.

Under the proposals, all exemptions will be ditched to create a level corporate tax playing field for every company.

The government is also planning to phase out a 0.04% tax on all banking transactions, and reduce the income tax paid by individuals.

Businesses have repeatedly begged the government to reduce the tax rate to encourage both local and foreign investment in the country. According to the KPMG and the Latin Business Chronicle Corporate Tax Rate Survey for 2005, Columbia's corporate tax rate, which KPMG put at 35%, is second only in the region to Honduras, where corporate tax is 36.25%.

To compensate for revenues lost as a result of the corporate tax cut, the government is mulling an increase in value added tax, and increasing the number of goods and services subject to the tax.

There will also be a "ruthless" crackdown on tax evasion, warned Carrasquilla.

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