Colombia - Taxation

In addition to income taxes, Colombia levies a 15% VAT, and municipal and property taxes. Many stamp taxes are imposed on legal documents. Personal income tax rates vary from 10% to 35%. There is a flat tax on corporate income of 35%. Indirect taxes include a tax on exported goods and services, a 5% surcharge on imports, a gasoline tax, and local taxes on vehicles and property.

The 1960 tax law began the process of modernizing Colombia's tax structure. Recognizing that Colombia's fiscal problems stemmed from insufficient revenues rather than excessive spending, the Lleras Restrepo administration (1966–70) introduced legislation to curb tax evasion and instituted a system of withholding income tax at the source. After President López took office in August 1974, a new series of fiscal measures was put into effect, including a revision of income, property, and sales taxes, removal of tax exemptions for government companies, and a reduction in tax incentives for exporters. The principal objectives of the tax reform were more progressivity in tax assessment scales, promotion of economic stability, and a reduction in the incidence of tax evasion. A clampdown on tax avoidance and evasion was also the motivation behind the reform measures of December 1982, which, like those under López, came amid a budgetary crisis. As part of an emergency package, a special amnesty was declared so that taxpayers who had omitted assets or declared nonexistent liabilities were allowed to make corrections in their tax returns and pay the tax due without additional penalty. The measure was reportedly targeted at those who had profited from the drug trade. During the 1990s, tax evasion was still quite common, and the government was considering raising tax levels to help stimulate the economy. For 2003 and 2004, Colombia's corporate income tax was raised to 38.5%, from 35%, but is scheduled to fall to 36.7% in 2005. Branches of foreign companies resident in Colombia are taxed at the same rate as domestic companies, but there is a remittance tax of 7% for foreign companies. A 0.3% tax is charged on debit transactions in the financial system. In 2002, a one-time 1.2% tax on companies and individuals with assets over 170 million Colombian Pesos (about $65,000) was assessed to fund increased military spending.

Individual income is taxed according to a progressive schedule with 35% as the highest marginal rate. The main indirect tax in Colombia is its value-added tax (VAT), with a standard rate of 16% as of 1 January 2001. There are eight other VAT rates, ranging from 7% to 45%. Exemptions from VAT include satellite TV service, cigarettes, some PCs, imports of some technology for educational purposes and charity institutions.

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