Colombia is the country of the Organization for Cooperation and Development (OECD) with the lower effective tax rate on labor. This was outlined this Tuesday by the Organization in the publication of its most recent sectoral report.
Specific, the tax wedge for a single worker in the country remained at 0.0% between 2020 and 2021, thus being the lowest among all the 38 members of the organization. This was the same position as in 2020.
(See: Exemptions, income and VAT: points to review for a new tax).
“In Colombia, the single worker at the average salary level did not pay personal income taxes in 2021, while his contributions to pension, health and occupational risk insurance are considered mandatory non-tax payments and, therefore, are not counted as taxes in the calculation of taxes on wages”, quotes the report of the club of good practices.
It is important to note that in this measurement, the agency’s average figure was 34.6%. Jens Arnold, who is the OECD economist for the country, “a Colombian worker with an average salary does not pay income tax, since only people with much higher incomes do.”
In the vast majority of OECD countries, this rent is paid, according to Arnold, and “that explains a good part of why labor taxation is lower in the country”.
(See: High taxes would slow economic growth in Colombia).
“Then there are the obligatory social contributions for the formals. But the sum of taxes and mandatory charges on income is lower”, he points out.
On the other hand, when segmenting the population of ‘a married couple with a single income’, the country has the penultimate tax wedge in the select group, specifically -5% from an average of 24.6%. In 2020, the country held the lowest position.
Behind Colombia is Chile with a rate close to -20%.
Now, on the side of the tax on employees on the salary of their work, Colombia registered the lowest rate of the agency, of 0.0%, above the average of 24.6%.
“In other words, in Colombia the net salary of a worker, after taxes and benefits, was 100% of his gross salary, compared to 75.4% of the organization”, quotes the group in a statement.
(See: What types of taxes exist in Colombia?).
RISE IN LABOR TAXATION
According to the agency’s press release, at a general level, these effective tax rates on labor picked up last year as the economy recovered and the withdrawal or reduction of the measures applied to deal with the covid-19 pandemic.
“The publication ‘Taxes on wages 2022’ shows that the increase in household income in 2021, together with the reversal of fiscal policies linked to the pandemic, drove the increase in effective taxes on wages in the OECD”, the organization pointed out.
However, despite this increase in most of the institution’s countries, the report states that “the OECD average tax wedge decreased slightly”, as “relatively large declines” in the tax wedge were observed in a small number of countries where new mmeasures support to deal with the pandemic.
In most countries, the increase in the tax wedge in 2021 has reached higher levels than in 2019 before the pandemic.
(See: Alert for possible increase in the Soat due to a bill).
For couples with two children and a single income earner earning 100% of the average salary, as well as households with two children and a single parent earning 67% of the average salary, the tax wedge was higher in 2021 than in 2019.
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