Financing Law: the effect that the proposal would have on the income tax return

Bill 300 of 2024, or financing lawhas generated a broad debate in society about its implications on the country’s economy and, in particular, on taxpayers’ income tax returns.

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According to Ciro Meza, tax partner at Baker McKenzie, the objective is to clean up the fiscal deficit generated by the lack of collection that has occurred in 2024given that there is a need to increase financing to meet execution goals regarding the initiatives of the National Government.

For her part, Catalina Jaramillo, Tax partner at Brigard Urrutia, explains that “Currently, a deficit of -3.3% of the Gross Domestic Product (GDP) is shown. “The financing law seeks to close the gap of 12 billion pesos in the budget, which generates the difference between the expected income (511 billion) and the projected expenses (523 billion).” And he adds that one of the determining factors has been the drop in tax collection.

According to the Autonomous Committee of the Fiscal Rule, as of September 2024, The collection registered a nominal decrease of 8.2% and a real decrease of 13.4% compared to the same period of the previous year, standing 3.3 percentage points below the projected goal.

This context highlights the need to adopt short-term corrective measures to guarantee the country’s fiscal sustainability.

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Impact

But what is the effect of Financing Law in the formal obligation that taxpayers have to report to the State their income, costs, deductions, assets, among other concepts?

Jaramillo highlights that he focuses mainly on the increase/modification of rates. “As for legal entities, it modifies the general income rate for legal entities by proposing marginal progressive rates between 24% and 35%; however, although it proposes this reduction in the corporate income rate, it increases the percentage of the effective income rate. taxation and increases the rate of occasional profits, which is not clear about the incentive to the business sector”says the expert.

Furthermore, for natural persons, raises the maximum rental rate from 39% to 41%, deepening the impact that natural persons experienced on the occasion of the 2023 tax reform presented by the Government.

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Colombian money

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“The reform does not propose to increase the universe of taxpayers subject to the formal duty to declare, nor does it reduce the thresholds to determine who would have an economic responsibility for the tax, so that the impact continues to be borne by the same range of taxpayers”says Catalina Jaramillo. And he adds that for small and medium-sized companies it is proposed to dismantle the simple regime, which in his opinion is a mistake.

“Although this regime requires some adjustments to avoid abuses in its use, eliminating it will only deepen the growth of informality, since this regime not only promotes formality based on preferential rates, but also administrative simplification that is essential for small and medium-sized companies. “concludes the expert.

In turn, Meza de Backer Mckenzie points out that, within the measures to alleviate the tax burden of companies, a progressive reduction in income tax is proposed at one percent annually, with the objective of reaching 30% in 2029 for companies with a net taxable income of less than $5,647 million pesos.

However, this is counterbalanced by an increase in the adjusted tax ratealso called ‘minimum rate’ for national companies, which would go from 15 to 20%, if the project is approved.

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