(Bloomberg) -- Colombia’s next government will seek to attract foreign investors by guaranteeing a stable business environment, rather than by giving tax breaks to favored sectors, according to one of its top officials.
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The administration of Gustavo Petro, which takes office next month, wants to create a level playing field by eliminating tax benefits that have tended to go to politically-connected players, said Luis Carlos Reyes, who Petro named to head the tax agency.
Instead, the Petro government wants to strengthen the rule of law and have clear and stable rules for business, Reyes said.
“The clear message that we want to send is that foreign investment is welcome,” Reyes said Friday, in a phone interview. “We are going seek to create stable conditions that make investing in the country attractive.”
Colombia’s public finances deteriorated sharply after the pandemic, and the country lost its investment grade credit rating last year. That means that Reyes has one of the key jobs in the next administration, since unless the government can significantly boost revenue, it’ll be difficult to fund the stronger welfare state that Petro promised his supporters.
Eliminating tax breaks would potentially allow the country to lower the tax rates paid by companies, Reyes said. Although Reyes didn’t mention specific sectors, tourism, construction, creative and cultural industries, and renewable energy all benefit from tax incentives of various kinds.
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On salaries, the incoming government is contemplating curbing tax breaks for those earning more than 10 million pesos ($2,300) per month, Reyes said. This could include contributions to voluntary pension funds and accounts for saving to buy real estate.
The new government will also study how taxes could be increased on investment income. One proposal being studied is to tax dividend payments at the same rate as salaries, with a maximum marginal rate of 39% compared to a 10% levy for dividends currently.
“In Colombia, capital can and must pay more,” he said.
The incoming administration’s tax reform is a top priority, and it will likely to be submitted on Aug. 7 when Petro takes office.
Colombia’s fiscal deficit will narrow to about 5.6% of gross domestic product this year, according to a forecast from the government, down from 7.1% last year.
Reyes, 38, moved to the US in his teens, and later studied in Miami before getting a doctorate in economics from Michigan State University.
He said he held a meeting with officials at the US Embassy in Colombia, and said the US Internal Revenue Service will cooperate with the Colombian tax authority to have better information about assets held overseas.
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