Tags: oecd | urges | reform | colombia | taxes

OECD Urges Reform of 'Inefficient and Regressive' Colombia Taxes

Monday, 19 January 2015 10:40 AM

Colombia’s tax system is “inefficient and regressive,” the Organisation for Economic Co-operation and Development said, advising the country to impose levies on dividends and carbon emissions while easing the burden on companies.

The Andean nation’s current tax policies discourage investment and job creation and limit access to financial services, the OECD said in its economic survey of Colombia published today. Colombia is seeking membership of the Paris- based organization, which advises governments on economic policy.

“Productivity and investment outside oil and mining remains subdued, due to a high tax burden on corporations and labor, inadequate infrastructure, and limits to access to finance,” the OECD said. “The Colombian tax system does not promote efficiency and fairness and is very complex.”

Increasing tax revenue is “critical,” as the government seeks to increase health and education spending amid a slump in oil prices, the OECD said. Oil accounts for 16 percent of government revenues, according to the Finance Ministry.

The Ministry’s press office didn’t reply to an e-mail seeking comment about the report.

Dividend Tax

If its candidacy is accepted, Colombia would become the third Latin American country after Mexico and Chile to join the group, which currently has 34 members. Finance Minister Mauricio Cardenas said in 2013 that entrance to the OECD would be at least as important for Colombia as the recovery of its investment grade credit rating in 2011.

Colombia’s national unemployment rate, which averaged 9.1 percent in the year through November, is the highest among major Latin American economies. On top of that, 50 percent and 70 percent of workers are employed in the informal sector, depending on how this is defined, said Christian Daude, an economist who heads the OECD’s Colombia desk.

The government can improve the functioning of the labor market by reducing non-wage labor costs, such as the payments employers must pay to organizations known as ‘cajas de compensacion,’ which provide unemployment insurance and run holiday resorts and theatres, Daude said.

“All these regulations that increase the cost of labor are still very high, and this is something that is restricting employment creation in Colombia,” Daude said in a Jan. 16 phone interview from Paris.

Colombia could increase tax revenues and make its system fairer by imposing a levy on dividends and eliminating tax breaks on mortgages and pensions that favor the wealthy, according to the study. The country could also boost fuel and environmental taxes, which currently represent 3.6 percent of total tax revenues, compared with the OECD average of 5.7 percent, according to the study.

At the same time, Colombia should lower its corporate income tax rate, the OECD said. The economy grew 4.8 percent last year according to analysts surveyed by Bloomberg, the fastest pace among major Latin American countries.

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Colombia's tax system is "inefficient and regressive," the Organisation for Economic Co-operation and Development said, advising the country to impose levies on dividends and carbon emissions while easing the burden on companies.The Andean nation's current tax policies...
oecd, urges, reform, colombia, taxes
Monday, 19 January 2015 10:40 AM
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