Colombia’s tax chief defends reform plan focusing on oil and coal

Colombia’s tax chief has defended elevating levies on oil and coal corporations with a purpose to fund the brand new leftist authorities’s socially bold agenda, a plan that has drawn a livid response from the extractive sector.

Gustavo Petro, a former city guerrilla and the nation’s first leftist president, promised on the marketing campaign path to spearhead Colombia’s power transition and pursue a greener agenda by boosting agriculture and eco-tourism.

“We don’t need simply any kind of funding in an power sector,” mentioned Luis Carlos Reyes, the director of DIAN, Colombia’s tax and customs company, in an interview with the Monetary Occasions. “We’re trying ahead to inserting Colombia into this power transition that the whole world has to undergo if we need to live on as a species.”

Requested if the brand new tax rise would scare off funding within the oil sector, Reyes mentioned that “we would like the trade to live on in the interim”.

“We’re much more desirous about incentivising these sectors that can assist us transition into inexperienced power, and the entire industries which might be tied with it.”

The tax reform invoice, if handed in its present type, goals to lift 21.5tn pesos ($4.7bn) altogether. It’s important if Petro is to pay for his bold social agenda. Throughout the marketing campaign, he additionally promised an overhaul of Colombia’s oil and mining industries, which produce half of the nation’s exports.

The 2023 price range, authorised by congress final week, allocates 4.08tn pesos ($856mn) — a 62.6 per cent enhance from 2022 — to the agricultural sector, which Petro has championed as an alternative choice to extractives.

Because it stands, oil and coal corporations can be stumping up practically half of the revenues raised by the tax reform invoice by way of a surcharge on company earnings tax — at a diminishing fee, from 10 per cent in 2023, 7.5 per cent in 2024 and 5 per cent in 2025 — and the cancellation of a statute that allowed royalty funds to be deducted from their tax payments.

It’s anticipated to go inside a month. Trade leaders have already warned the burden it could place on the extractive sector will stifle funding and output.

Oil and coal are the nation’s high two exports, valued in 2019 at $12.9bn and $4.8bn, respectively, whereas oil and mining present as much as 8 per cent of GDP, in response to authorities information.

In a memorandum, the Colombian Affiliation for Oil and Gasoline (ACP) blasted the reform proposal, claiming it could increase the federal government tackle new initiatives by 25 per cent and would put 20,000 direct jobs in danger.

“We’re fearful,” Francisco José Lloreda, the ACP’s president, informed the FT. “We’re seeing a authorities that, opposite to worldwide dynamics, appears to not worth this trade.”

Ecopetrol, a state-owned firm and Colombia’s largest producer, mentioned in a letter to congress that the funding it might lose because of the reform proposal would trigger manufacturing to fall by 100,000 barrels per day in 2026 and doubtlessly put the nation’s stability of funds in danger.

Petro has made no secret of his aversion to extractive industries. On the marketing campaign path he promised to halt new oil and gasoline exploration initiatives, although his administration’s messaging on that pledge has been contradictory. Final month, setting minister Susana Muhamad informed the FT that the administration is planning on requiring environmental licences for mining exploration.

Luis Fernando Mejía, the manager director of Fedesarrollo, a Colombian financial think-tank, mentioned that the reform might have huge macroeconomic ramifications at a time when the nation’s financial system — saddled with record- excessive inflation and costly debt servicing prices — is fragile.

“Undoubtedly, [the reform] might result in eventualities of considerable reductions in funding and will generate destructive results when it comes to the stability of funds, the supply of international foreign money {dollars} getting into the nation, and the financing of the present account.”