BOGOTA, (Reuters) – Colombia’s Congress yesterday approved a tax reform bill that will raise an additional 20 trillion pesos ($4 billion) annually for the next four years, in part through increased duties on oil and coal.
The new law, the centrepiece of new President Gustavo Petro’s economic policies, seeks to fund social projects and put the country’s public finances in order.
But it has also been heavily criticised by business lobbies who argue that the levies on the country’s top exports will discourage investment, while uncertainty over the bill has contributed to a steep decline in the peso with the currency hitting a historic low earlier in the day.
In addition to duties of up to 10% on coal and up to 15% on crude oil when prices go above a certain level, the law will impose higher taxes on people who earn more than 10 million pesos, about $2,000, per month, as well as on single-use plastics, sugary drinks and ultra-processed foods.
“This is the most progressive reform in history, there are obviously some sectors which will pay more taxes but all have high earnings,” Finance Minister Jose Antonio Ocampo told reporters on Thursday.
He added that agriculture, education, healthcare and peace programs can now count on significantly more financing and that the markets should not fear that the government would not be fiscally responsible.
But the bill, approved on Wednesday by the Senate and on Thursday by the lower house, is less ambitious in scope than the initial proposal from Petro’s leftist government which called for generating 25 trillion pesos in additional taxes annually.
Petro has also pledged to transition away from hydrocarbons, though the government said last week it may reverse a much-maligned ban on new oil contracts.
The new law states that oil companies will be taxed an additional 5% when international prices are between $67.3 and $75 per barrel. That then becomes an additional 10% when prices are between $75 and $82.2 per barrel and then 15% if they climb any higher.
Coal companies will face similar extra charges when prices exceed certain thresholds. Oil and mining companies will also not be able to deduct the value of royalties from income taxes.
The peso tumbled to a record low of 5,070 to the dollar ahead of the bill being passed. The currency has depreciated some 25% so far this year.
Ocampo has called recent market moves an overreaction.
