New Colombian fiscal reform will pass but is flawed

Significance

The plan avoids new taxes on individuals, instead increasing the fiscal burden on firms. The proposed measures aim to generate COP15.2tn (USD3.9bn) in new revenue, which would be used to expand subsidies to households and firms, encourage youth employment, and guarantee tuition-free university for low-income students.

Impacts

• The proposals will increase annual revenue by at least 1% of GDP, boosting Colombia’s historically low tax collection.
• The extension of social benefits may provide a modest political dividend for the government, but will not be an electoral game-changer.
• Future reforms will be necessary to address the structural deficit, expand the personal income tax base and improve progressivity.