Works for Taxes is not only a somewhat sui generis figure, it is a extraordinary example of a public-private partnership. This mechanism for companies to alternatively pay their income tax through the execution of a project in the areas most affected by the conflict has already passed the test of three governments with very different political flags: it was created in Juan Santos Manual, implemented and developed in that of Iván Duque and consolidated in that of Gustavo Petro. The latter not only maintained, but increased the annual quota to 800,000 million in 2023 and to one trillion for the current period.
This happens because the mechanism has proven to be successful: year after year more companies jointhe quota has been increased three times and the total amount that has been invested annually does not stop growing. It has also become more sophisticated, as it has learned from its lessons and has an increasingly robust ecosystem. Some companies even have teams dedicated to the management of Works for Taxes, which encourages more companies.
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It is in their implementation that public policies build the best arguments to maintain or change them. With practice, Works for Taxes has demonstrated the first. This makes it easier for companies to pay directly to Dianthey have seen that by exercising corporate citizenship through this mechanism they know where their taxes go and they also obtain a reputational benefit.
The mayors of the municipalities where the works are carried out, despite the fact that they assign the execution of a project to a third party (and share the credit with it), see that They benefit from additional resources that come from the General Budget of the Nationwhich in practice means accessing an additional bag.
And the State, at the head of the national government, renounces the free disposal of these public resources, but gains in efficiency, since in a single operation it collects taxes and distributes and assigns them for their execution. Furthermore, with a commitment to transparency and efficiency supported by the fact that The companies assume the completion of the project at their own expense and risk.
Finally, the communities see that the works arrive and are done.
So far, all good news. However, Works for Taxes also faces some challenges that stem from its success. One of them has to do with the use of the quota in each term. Although in the last two years it was expanded and the highest figures were approved (something that is not minor), not everything was used. In 2023, $667,226 million were approved, 83% of the quota of $800,000 million for that year, the lowest proportion since the mechanism was created. In 2024, everything indicates that the investment will exceed $869,000 million, the largest to datebut which is equivalent to 87% of the quota.
Although we will only know the real data until the end of December, it is already possible to take stock of the mechanism during the first two years of the Petro government.
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The positive, to date, is that The Government decidedly bet on Works for Taxes by expanding the quota. However, there are two decisions that it has made that have indirectly affected the expansion of the quota for which it opted for the mechanism: the non-deductibility of royalties and the increase in corporate income tax self-withholdings. Although legally Companies can use up to 50% of income taxin practice they usually use the balance payable to Dian and both measures reduced it.
With self-withholdings, companies prepay their income tax. If they do it more during the year, it means that they have less balance to pay (even a balance in favor in certain cases). And less balance to pay implies less availability of resources to link to Works for Taxes. Although at the beginning of this year the Government introduced a relief in self-withholdings for certain sectors, it continues to affect several companies.
Works for taxes.
On the other hand, the measure of non-deductibility of royalties also ended up further reducing the balance payable of companies in the extractive sector, which is the one that participates the most in Works for Taxes. Because this measure fell, companies ended up prepaying more taxes and therefore were left with a smaller balance.
Despite this, the mechanism has already shown skeptics that public-private collaboration is possible. And, it sends a double message: to the institutions so that they recognize in the business sector a partner that can contribute with various resources (not only financial). And companies, to also recognize what they can achieve when they go beyond what they strictly must do.
At the Ideas for Peace Foundation We have insisted that expanding the Works for Taxes quota is not equivalent to expanding its capacity. Given the difficult situation of the cash flow of the General Budget of the Nation, there is a risk that the quota will be reduced. Hence, maintaining it, strengthening the mechanism and defending the focus on the regions most affected by conflict and poverty are of utmost importance.
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FELIPE ZARAMA
Internationalist from the Universidad del Rosario with a master’s degree in Public Policy from Georgetown University. He is currently a senior researcher in the Peace Construction area of the Ideas for Peace Foundation (FIP).
