The tax burden assumed by companies in Colombia has been the topic of conversation this week, as there are conflicting positions between the Government, headed by the Ministry of Finance, and the Association of Colombian Entrepreneurs (Andi). The first defends that the effective tax rate (TET) is actually 25.5%, while the union speaks of levels of around 50%.
(Effective Tax Rate: Andi figure does not coincide with the Government).
Said rate corresponds to the percentage of the profits that the companies allocate to the payment of taxes. And although in Colombia the rental rate is 35%, the amount of taxes paid by companies varies due to other taxes to which they are subject, or due to the possibilities of deducting some payments from their general rate.
The president of Andi, Bruce Mac Master, assured in several spaces during the last weeks that the TET paid by companies in Colombia is 56.7% in the case of manufacturing industries, 60.6% in services, and 53% for mining and hydrocarbon companies. And that with the tax this would increase.
“The combined company-partner income rate, which is currently 41.5%, would increase to 60.4%”, said the union leader during a speech before Congress at the beginning of the month.
Given these statements, this week, the Ministry of Finance published a document in which the Government reviews the TET. According to the economic portfolio, in reality, companies in Colombia have an effective rate of 25.5%, lower than the current rental rate. And with the reform, this would reach 29.4%.
(Effective Tax Rate for companies would reach 29.4%).
According to the document, other TET calculations that have been presented ignore tax benefits, assume that dividends always pay the highest marginal rate, ignore that all profits are not distributed as dividends, and do not take into account of Tax on Financial Movements (GMF) and the ICA end up being paid by consumers.
In fact, the Minister of Finance, José Antonio Ocampo, also assured this Tuesday, prior to the publication of the document, that “The rates are much lower than what Andi and many other analysts have said, those calculations are incorrect.”
Effective Tax Rate.
Despite the study, the representative of the businessmen responded on his Twitter account. “We have received analysis of effective taxation made by the Ministry of Finance and identified all the differences in concepts. Unfortunately, in Colombia tax rates are not that low, we all wish we were! We will publish details with the actual rates for your discussion”Mac Master warbled.
Portfolio consulted with the Minister of Finance on the reason for the difference in criteria in the effective tax rate.
“The analyzes that have been done take the maximum, maximum, maximum. We take what is reality, we look at the tax benefits, how much of the profits are distributed. Those calculations are totally wrong. The World Bank even had calculations like this and had to discontinue them.” Ocampo assured.
(Income, equity and earnings, changes to natural persons).
According to the holder of the portfolio, the problem with not only the Andi calculation, but also that of other sources, is that they use the maximum rate. “In our opinion, all the other figures, without exception, are wrong, that is why we began to carry out a judicious exercise taking all these factors, which other analyzes do not take into account,” the Minister pointed out to this medium.
Likewise, Andi also published this Thursday an analysis of the estimates shown by the Ministry, and maintained in the statement that “Apparently it is a summary of a study that should be published in its entirety, in order to deepen its analysis. It is necessary to clearly know the bases of legal analysis, metrics, samples and impacts by sector, in which those that enjoy better tax benefits can be better appreciated”.
The union questioned leaving aside the ICA and the 4×1,000, and that the Ministry shows effective rates ‘only for rent’. Andi said that “reiterates the suitability of the figures that it has been presenting throughout the tax reform debate and invites the Ministry of Finance to reveal its complete study, broken down by sector.”
The analysis around ETT is not new, and there are several studies on it. “The effective rate of taxation in Colombia is relatively high when compared to other countries, and this has been shown by different studies,” assured José Ignacio López, director of economic research at Corficolombiana.
López mentioned that something important to keep in mind is that this rate not only looks at the income tax, but also others such as the ICA and the GMF. “What is also true is that there is a large dispersion of effective tax rates, so depending on how the sector is analyzed and its size, lower rates could be found”he said, and highlighted that the reform precisely seeks to eliminate this dispersion, but it goes back on the possibility of discounting the ICA.
From EY Colombia, Luis Orlando Sánchez, partner for International Taxes and Transactions of the firm, highlighted that “Perhaps, with the information available, the methodology, considerations and assumptions used by the Government to arrive at these numbers are not entirely clear. The Government says it includes much less taxes that impact companies, and that apparently are considered in the Andi.
According to Sánchez, from EY, as advisers, it has been seen that “Colombia often loses investment opportunities due to high taxation.”
LAURA LUCIA BECERRA ELEJALDE
