COLOMBIA NEWS (Bloomberg) — Colombia is seeking to increase taxes on the net wealth of its richest citizens in line with proposals laid out by French economist Thomas Piketty in his bestseller “Capital in the Twenty-First Century.”
The government will impose a 2.25 percent annual tax on wealth of more than 8 billion pesos ($4.1 million), Deputy Finance Minister Andres Escobar told reporters in Bogota last night. Smaller fortunes will pay lower rates, with capital of less than 750 million pesos paying nothing, Escobar said.
“The important thing is to tell wealthy Colombians, people who have a lot of economic capacity, that it’s necessary to pay a bit more tax,” Finance Minister Mauricio Cardenas said yesterday in a radio interview. “We need a wealth tax where the great fortunes in our country make a bigger contribution.”
Colombia is one of the world’s most unequal societies, according to Piketty’s World Top Incomes Database, with the top 1 percent of earners having a 20 percent share of national income in 2010, compared to 17 percent in the U.S. In April, Cardenas said in posts on Twitter that Piketty’s book is “of great relevance to Colombia” and that “these ideas will very soon be fueling our debate.”
The reform replaces a previous wealth tax, which charged tax payers a lump sum based on their declared net wealth Jan. 1, 2011, with the amount payable over four years. The top rate was 6 percent, equivalent to 1.5 per year over the four-year period.
Piketty, a professor at the Paris School of Economics, describes a widening global inequality between the rich and everyone else, and advocates a progressive annual tax on capital to narrow the gap. Piketty’s work has been widely read in Colombian policy circles, central bank co-director Carlos Gustavo Cano said yesterday in a phone interview.
Fifty thousand Colombians, or 0.1 percent of the population, would pay the tax, according to Finance Ministry estimates. The tax will be calculated on a snapshot of the taxpayer’s wealth on Jan. 1 each year, Escobar said.
The levy doesn’t apply to shares held in Colombian companies, and citizens can deduct the value of their home, up to a limit, from their taxable wealth. About 40,000 companies will also need to pay the tax, Escobar said.
The reform will have to be approved by Congress, where allies of President Juan Manuel Santos command majorities in both houses, to become law. If passed, it would take effect Jan. 1, 2015. The reform is designed to avoid a budget shortfall caused by a drop in oil revenues, Cardenas said.
The bill would lower the threshold at which the wealth tax becomes payable to 750 million pesos from 1 billion pesos. Above that, the tranche of wealth of 750 million to 3 billion pesos would pay a 0.4 percent rate; wealth of 3 billion to 5 billion pesos would pay 1.1 percent; wealth of 5 billion to 8 billion pesos would pay 2 percent.
The reform would also extend a 0.4 percent financial transactions tax until 2018, and may also increase the sales tax, according to Cardenas. The government will “fight tooth and nail” to avoid breaching its deficit targets, he said.
Government revenues have been bolstered over the last decade by a surge in oil production, which accounts for more than half of the Andean nation’s exports. Production will decline this year for the first time since 2005, according to government forecasts.
“Oil output has been falling this year for a variety of reasons, including pipeline attacks, social protests in some producing areas which have slowed the development of projects, and operational difficulties,” Cardenas said. “Producing oil in Colombia is becoming more difficult technologically, because it’s a heavier crude that is harder to extract, and this obviously generates greater costs.”
The state will receive lower dividends next year from state-controlled oil company Ecopetrol S.A., Cardenas said.
Source: Washington Post
