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Colombia Ditches Corporate Tax Cut

by Mike Godfrey,, Washington

19 December 2005

Colombian Finance Minister Alberto Carrasquilla announced last week that he has withdrawn a proposal to slash the country's corporate tax rate because the idea lacked a sufficient amount of support in the legislature.

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

Mr Carrasquilla had proposed to make this cut permanent for companies that reinvested their profits, while firms that chose not to reinvest would receive a smaller tax cut to 35%. However, with President Alvaro Uribe's minority right-wing Liberal Party faction unable to muster enough support for the tax cut, the minister said last week that the government has decided to put the plans on hold for the time being.

"I decided to withdraw the proposal because we didn't have enough votes to transform the bill into a law," Carrasquilla stated.

"The government will continue with the project later on," he added.

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%.

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