Colombia’s government presents “Economic Rescue Bill”

On Thursday, Colombia's Vice-President Jose Manuel Restrepo unveiled an Economic Rescue Bill aimed at curbing government spending and boosting revenue. The bill empowers President Abelardo de la Espriella with extensive authority to slash spending through decrees and enacts a tax reform that raises rates on gasoline, coffee, cigarettes, and vegetables.

De la Espriella's extraordinary powers include the ability to abolish, merge, split, or rename ministries, administrative departments, and various state bodies, as well as altering the personnel of the tax agency DIAN.

The legislation also mandates a 20% reduction in salaries for state employees, with exceptions for security forces and a halving of temporary contract costs. Notably, the bill plans to remove popular products like cocoa, coffee, sugar, and fruits from the VAT exemption list and impose a 19% sales tax on them. Gasoline prices are expected to rise due to an increase in taxes, while vice products such as liquor and cigarettes will see a significant price hike, potentially up to 53%.

In an effort to prevent the bill from disproportionately affecting the poor, it includes provisions for refunding up to 100% of IVA payments to approximately 19 million of Colombia's most vulnerable citizens. However, the increase in tax burden on the middle class has already prompted opposition within De la Espriella's congressional coalition.

Additionally, the government intends to gradually lower the corporate income tax from 35% to 31% and offer reduced tax rates for large companies investing in new ventures. However, former IDA director Luis Carlos Reyes points out that a similar scheme introduced by former President Alvaro Uribe proved ineffective in promoting investment.