Notes on the Income and Wealth Tax of the Financing Law Proposal.

A financing law (also called tax reform 2.024) will be submitted for approval by Congress to cover the shortfall in the General Budget of the Nation for 2.025. In effect, this Budget requires that financing that will provide $12 billion.

Official calculations show that for the year 2.025 those $12 billion are made up of 2.1 billion of increased gambling revenue, 1.3 billion from carbon tax, 0.9 billion of increased revenue from natural persons, 0.9 billion of increased revenue from wealth tax and 1.6 billion of improved DIAN activity (which is an uncertain movement). So far the increased revenue amounts to 6.8 billion. But the remaining 5.3 billion consists of income (from debt) from green projects that would be outside of compliance with the fiscal rule. Thus, with this, the financing would add up to $12 billion for the year 2.025 that the Budget requires.

In addition to the controversy of removing the fiscal rule debt for green projects for the year 2.025 and thus financing the budget shortfall, it should also be noted that for the following year, 2.026, a reduction in corporate income tax would come into effect, which is also part of the financing law as an incentive for business activity that is proposed to be approved in the aforementioned law. This is a decrease in the year 2.026 of the tax collection by companies of -3.1 billion, which would exceed the increase in the personal income tax of 1 billion and also the increase in the wealth tax of 0.9 billion, only the increase in the gambling tax of 2.2 billion and the carbon tax of 1.1 billion would allow for compensation.

The same thing happens in the following years, that is, the progressive decrease in the corporate income tax is greater than the greater collection due to the increase in the personal income tax added to the increase in the wealth tax. In effect, for the year 2.030, companies will see their income tax reduced by -7.6 billion in the year, while the greater collection that grows relatively little in the personal income tax will reach 1.6 billion and the greater collection by wealth will reach 1.2 billion.

Therefore, these previous movements between collections from legal entities and natural persons would lead to greater pressure on the existing fiscal deficit. But what compensates for this greater deficit is a higher tax on gambling and the carbon tax, which together add up to a greater collection of 4 billion in that year 2030 and also a greater activity of the Dian for 1.4 billion with the uncertainty that the Dian's will not be carried out as expected.

The greater collection of the Dian is so uncertain that some think tanks take it out of the calculations and so for that year 2030 there would be a fiscal deficit caused by this financing law that would reach -1 billion.

Another alternative to avoid the pressure of a larger fiscal deficit would be to modify the corporate income tax reduction rates not from 35% to 30% but from 35% to 32% at the end of the period in 2.030 and only maintain those of SMEs (small and medium-sized industry) at the initial levels (or up to 27%). This would also cure a lower collection that would occur in gambling in the coming years.

In the event that the financing law mentioned above is not approved, the financing described above for $12 billion for the year 2.025 would not be carried out and neither would the reduction of the corporate income tax nor the higher collection in income and assets presented earlier in this note be approved. Possibly the amount of the General Budget of the Nation for 2.025 would have to be reduced by those $12 billion to a figure of 511 billion pesos.

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Wealth tax

Wealth’s worth $2.382 billion paid $0 tax and with the reform they will pay $2.5 million.

Wealth’s worth $3.382 billion paid $0 tax and with the reform they will pay $8 million.

Wealth’s worth $3.882 billion paid $2.4 million tax and with the reform they will pay $13 million.

Wealth’s worth $6.882 billion paid $23 million tax and with the reform they will pay $49 million.

Wealth’s worth $10.382 billion will pay $58 million tax.

As mentioned before, the changes to the wealth tax are intended to raise $0.9 billion by 2.025 and $1.1 billion by 2.030. These figures are slightly lower than expected in terms of revenue from the changes to the personal income tax, but together they would be much lower than what would be lowered in the corporate income tax as shown above.