BOGOTA, Nov 3 (Reuters) – Colombia’s Congress on Thursday approved a tax reform bill that will raise an additional 20 trillion pesos ($4 billion) a year over the next four years, in part thanks to the increase in oil and coal duties.
The new law, the centerpiece of the economic policy of the new President Gustavo Petro, aims to finance social projects and to clean up the country’s public finances.
But it has also been heavily criticized by business lobbies who say levies on the country’s main exports will discourage investment, while uncertainty surrounding the bill has contributed to a sharp drop in the peso, with the currency hitting a low history earlier today.
In addition to duties of up to 10% on coal and up to 15% on crude oil when prices exceed a certain level, the law will impose higher taxes on people who earn more than 10 million pesos, or about $2,000 a month, as well as on single-use plastics, sugary drinks and ultra-processed foods.
“This is the most progressive reform in history, obviously there are sectors that will pay more taxes but all have high incomes,” Finance Minister Jose Antonio Ocampo told reporters on Thursday.
He added that agriculture, education, health and peace programs can now rely on much more funding and markets should not fear that the government is not fiscally responsible.
But the bill, approved by the Senate on Wednesday and by the lower house on Thursday, is less ambitious in scope than the left-leaning Petro government’s initial proposal that called for raising 25 trillion pesos in additional taxes a year.
Petro has also pledged to move away from hydrocarbons, although the government said last week it could overturn a much-maligned ban on new oil contracts.
The new law stipulates that oil companies will be taxed an additional 5% when international prices fall between $67.3 and $75 a barrel. It then becomes an additional 10% when prices are between $75 and $82.2 a barrel, then 15% if they rise further.
Coal companies will face similar additional costs when prices exceed certain thresholds. Oil and mining companies will also not be able to deduct the value of the royalties from income tax.
The peso fell to an all-time high of 5,070 to the dollar before the bill passed. The currency has depreciated by around 25% so far this year.
Ocampo called recent market moves an overreaction.
($1 = 5,015.84 Colombian pesos)
Reporting by Carlos Vargas; Written by Julia Symmes Cobb; Editing by Edwina Gibbs
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