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OECD Urges Colombia To Lower CIT Rate

by Mike Godfrey,, Washington

08 June 2015

Colombia needs to boost revenues and shift the tax burden to support more inclusive and green growth, the Organisation for Economic Cooperation and Development has said in a new report.

The report, entitled Making Colombia's Tax Policy More Efficient, Fair, and Green, says that a reform of the corporate income tax regime would be growth enhancing. It says in particular that gradually moving towards a lower statutory rate would stimulate investment, especially in activities with narrower profit margins than in the commodity sector.

The Government lowered the statutory corporate income tax rate from 33 percent to 25 percent in 2012 but simultaneously introduced a new "equity" tax on corporate income (known as the CREE) to fund social programs that were previously financed through payroll taxes. The CREE applies on a broader base than the corporate income tax at a rate of nine percent through 2015 and eight percent thereafter, although the Government is planning to make the nine percent rate permanent. The combined statutory rate of 34 percent is above the average for Latin American and OECD countries, the OECD said.

The OECD said that the corporate income tax and the CREE surtax should be unified in the long term, which would require that the Government no longer earmark CREE surtax revenue for use in specific expenditure programs.

The report also called on the authorities to phase out the "distortive" financial transaction tax, which is currently charged at a rate of 0.4 percent on all financial transactions, including banknotes, promissory notes, and internet banking. Alternative sources of revenue should be considered, such as a tax on high-frequency trading, which could raise revenue from the financial sector while lowering the risks of asset price bubbles, the report said.

In addition, the OECD said that the Government should consider broadening the value-added tax (VAT) to excluded activities. It also pointed out that there is room to increase the standard VAT rate from the current 16 percent rate.

The other recommendations outlined in the report include broadening the personal income tax base and introducing more progressive rates. The report also recommends that tax loopholes and exemptions that erode the tax base and favor the rich should be reduced significantly. Strengthening the tax administration will help reduce evasion, it added.

TAGS: compliance | tax | investment | economics | value added tax (VAT) | tax compliance | fiscal policy | banking | Organisation for Economic Co-operation and Development (OECD) | corporation tax | Colombia | payroll | internet | tax rates | dividends | tax reform | individual income tax | Tax | Tax Evasion

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