## 1. Other Tax Measures in the Financing Law ## Source details **Canonical URL:** [1. Other Tax Measures in the Financing Law](https://www.imf.org/-/media/files/publications/cr/2019/1colea2019002.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2019/1colea2019002.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2019/1colea2019002.pdf.json) --- ### Summary findings - Colombia passed a Financing Law (FL) in December 2018 to raise revenues and improve competitiveness while operating within the expenditure envelope approved by Congress. - The analysis finds that the Law may boost medium-term growth by around 0.2 percent of GDP but may lead to future tax revenue shortfalls starting in 2020. - Colombia’s tax revenue was 13.6 percent of GDP (central government, 2016) compared to 17.7 percent on average for regional peers and 20.3 percent OECD average. - The FL is expected to yield additional revenues in 2019, but from 2020 onwards reducing the tax burden on corporations (lower CIT rates, VAT credit for capital goods, crediting municipal taxes) is expected to result in net revenue losses. ### Static revenue impacts (expected revenues from the Financing Law, 2019–22) - Overall static effect on revenue: - 2019: 0.73 percent of 2018 GDP (Col$7,130 billion) - 2020: -0.23 percent of 2018 GDP (Col$-2,218 billion) - 2021: -0.39 percent of 2018 GDP (Col$-3,768 billion) - 2022: -0.77 percent of 2018 GDP (Col$-7,500 billion) - Detailed measures (Revenue as a % of 2018 GDP): - VAT: Expansion to entire commercial chain for beer and soft drinks — 2019: 0.09; 2020: 0.10; 2021: 0.11; 2022: 0.12 - Excises (INC): Sale of real estate above 26,800 UVT (2%) — 2019: 0.17; 2020: 0.19; 2021: 0.20; 2022: 0.22 - PIT: Merger of PIT schedule and new top marginal rates (35%, 37%, 39%) — 2019: 0.19; 2020: 0.21; 2021: 0.23; 2022: 0.24 - Wealth tax (1% for net assets above COP 5 bl) — 2019: 0.08; 2020: 0.09; 2021: 0.09; 2022: 0.00 - Flat rate on dividend (15% residents) — 2019: 0.05; 2020: 0.05; 2021: 0.05; 2022: 0.06 - Reduction of CIT rates (2020: 32%, 2021: 31%, 2022: 30%) — 2019: 0.00; 2020: 0.00; 2021: -0.13; 2022: -0.27 - VAT credit against CIT for acquisition of capital goods (100%) — 2019: 0.00; 2020: -0.63; 2021: -0.68; 2022: -0.73 - Gradual elimination of presumptive income tax (2019-20: 1,5%, 2021: 0%) — 2019: 0.00; 2020: -0.14; 2021: -0.15; 2022: -0.27 - Credit for ICA against CIT (2019-2021: 50%, 2022: 100%) — 2019: 0.00; 2020: -0.16; 2021: -0.18; 2022: -0.20 - Final withholding on distribution of dividends (non-residents: 7,5%) — 2019: 0.04; 2020: 0.04; 2021: 0.04; 2022: 0.05 - Supplementary rate on financial sector (2019: 4%, 2020 y 2021: 3%) — 2019: 0.00; 2020: 0.03; 2021: 0.02; 2022: 0.02 - DIAN normalization 2019 — 2019: 0.10; 2020: 0.00; 2021: 0.00; 2022: 0.00 ### Macroeconomic impact and model simulation results - GIMF simulations indicate: - The direct growth impact of tax measures will boost GDP growth by 0.2 over ten years in the model. - Growth arises from higher investment due to the reduction in the corporate tax burden. - Cuts in government spending will be required to plug an increasing revenue gap unless alternative revenue is identified. - Static losses to net revenues could be larger in the longer term due to new special regimes; positive GDP growth effects on revenues would have to be sizeable to offset static revenue losses. ### Major tax policy changes in the FL - Corporate taxation: - Gradual reduction in CIT to 30 percent in 2022 (from current 33 percent), slower pace for financial sector. - Elimination of presumptive tax (gradual). - Allows direct credit of VAT for capital goods against CIT (estimated cost 0.6 percent of GDP). - Crediting municipal ICA tax against CIT: 50 percent credit initially, rising to 100 percent in 2022; official estimate of central government cost 0.4 percent of GDP when fully effective in 2023 (not included in Table 1). - New preferential corporate regimes (mega-proyectos, orange economy, some agricultural projects, tourism) with low 27 percent CIT for some and other benefits. - Personal Income Tax (PIT): - Merge of income schedules into a single schedule with exempt range of 1090 UVTs (previously up to 2290 UVTs across multiple schedules). - New top marginal rates for labor income: 35 percent, 37 percent and 39 percent — DIAN estimates less than 2,000 taxpayers affected and combined effect with schedule merger to raise 0.2 percent of GDP. - Generous deductions remain (up to 40 percent of income for qualifying expenditures; ceilings in UVTs such as 2,500 UVTs for voluntary pension contributions). - Wealth tax: - Temporary reintroduction of a flat 1 percent tax on net assets above COP 5 billion for three years; housing excluded up to 13,500 UVTs and low-income dwellings generally excluded. - Additional revenue estimate of 0.1 percent of GDP noted as optimistic given higher threshold relative to prior tax. - VAT and excises: - VAT applied throughout the value-added chain for beer and soft drinks (DIAN estimate 0.1 percent of GDP additional revenue). - Special consumption tax (INC) not included in VAT base for these goods. - Introduction of indirect tax on digital services (no specific revenue attached). - Corrections to VAT loopholes for Zonas Francas transactions; exemptions and special 5 percent rate remain significant tax expenditures. ### Risks, uncertainties, and distributional implications - Key risks to revenue estimates: - The VAT credit for capital goods could cost more than estimated if the legal interpretation of “fixed assets” proves broader than “capital goods”. - The revenue effect of the VAT credit assumes all companies have sufficient CIT or presumptive tax to use the credit; if not, initial effects may be lower as credits are spread over time. - Crediting ICA against CIT may transfer resources from central government to richer municipalities and could cost more than official estimates given ICA currently collects nearly COP8 billion (over 0.8 percent of GDP). - New preferential regimes create difficult-to-quantify long-term revenue losses and complex administration challenges for DIAN. - Distributional implications: - PIT changes increase progressivity modestly through higher top marginal rates and schedule merger, but generous exemptions and deductions limit overall progressivity. - Wealth tax targets high-net-worth households but design features (threshold size, exclusion rules, inclusion of historic share values) introduce uncertainty and potential avoidance incentives. ### Box 1 — Selected measures and details - Presumptive tax elimination: - A mandated tax base floor of 3.5 percent on net assets (the presumptive tax) existed until 2018. - The presumptive tax will be gradually eliminated; DIAN estimates full elimination in 2021 will cost 0.2 percent of GDP, assuming those who pay today are in a loss position and will have no CIT base. - The projection assumes taxpayers currently paying CIT on a basis just above 3.5 percent of net assets will not reduce their tax in the absence of the presumptive minimum; the text notes this might be an optimistic assumption. - The revenue impact could have been softened by allowing firms to credit the tax against future CIT, with a relatively long carry forward period. - Dividend taxation and withholding: - Tax on dividends for residents increased to a flat rate of 15 percent, starting in 2019. - Dividends are not subject to the PIT progressive rate schedule; they are taxed separately at the shareholder level. - Previous top marginal rate was 10 percent at 1,000 UVTs or more, with 5 percent and 0 percent rates applied to lower dividend amounts. - Withholding on dividends was set at 7.5 percent, creditable against the final tax. - Foreign residents are subject to a final withholding of 7.5 percent (before it was 5 percent) or lower depending on double taxation treaties. - The measure was estimated to raise about 0.1 percent of GDP, though the estimate is uncertain because the higher tax may inhibit formal dividend distributions. - There is uncertainty about the vintage of dividends to be taxed, since distributions may originate from profits from previous years, including prior to 2017. - Tax treaties will keep the withholding rate for an important (but unknown) proportion of dividends to foreign residents unaltered. - Deemed distributions and non-deductible shareholder expenditures: - Deemed dividend distributions are not recharacterized in Colombia’s tax law. - Companies may incur expenditures on behalf of final shareholders that should be non-deductible and considered deemed distributions, subject to withholding and to PIT at the flat 15 percent rate. - Without such recharacterization, there is a strong preference for companies (typically through Sociedades Anonimas Simplificadas) to spend on behalf of the shareholder instead of distributing dividends. - Interest earnings taxation (inflation adjustment): - The inflation adjustment of the tax base of individuals’ interest earnings was eliminated. - Previously, legal persons paid tax on nominal interest while individuals paid on real interest; the Financing Law normalized the tax base to nominal interest. - This will increase revenue for the budget but may have a regressive effect because smaller deposits, which typically yield lower real interest rates, will now face a higher tax burden. - Excise on real estate sales: - The Financing Law introduces a new excise on the sale of new and used real estate at 2 percent. - The tax applies to buildings above (approximately) US$280,000; it applies to the whole value of the property when above that threshold. - The tax does not apply to low income housing developments. - The excise replaces a VAT at 5 percent (2018) on new residential housing and is estimated to increase revenues by 0.1 percent of GDP. - The main revenue reasons: the credit for input-VAT will no longer be claimed and the new tax includes used buildings. - One-off “normalization tax”: - A one-off “normalization tax” allows undeclared income, if declared, to avoid penalties and be taxed at a one-off rate of 13 percent. - The program projects Col$1 billion in 2019 (noted as a conservative projection given past events where tax revenue from a normalization scheme in 2017 was Col$1.8 billion). - Factors that may dampen success: - Well-founded suspicion this will not be the last normalization program, given past experience. - Not all bilateral administrative procedures have been put into place to secure full advantage of exchange of tax information. - PIT is not the only relevant comparison tax; wealth and inheritance taxes also matter. - A 50 percent discount is granted if the repatriated asset stays in Colombia for two years. ### Macroeconomic effects — GIMF simulations (key quantitative findings) - Simulations assume all tax and expenditure measures are fully credible and permanent and examine components sequentially. - Key quantitative simulation findings (as stated): - Tax revenue measures from VAT and PIT reduce the level of GDP by 0.3 percent relative to baseline on impact, and by 0.2 percent in the long-run. - Lower corporate taxes and the credit of VAT on capital goods: - Boost capital accumulation and potential output. - Raise permanent income and consumption. - Near-term monetary authority increases interest rates; imports increase and the current account deficit widens. - Overall tax revenues are lower relative to the baseline: one percent on impact and around 2½ percent in the long-run. - Government deficit rises by over ½ percent of GDP in the long-run; government debt increases. - Government expenditure cuts beyond 2019 are needed to offset tax revenue losses to meet the fiscal rule’s deficit targets. - Additional revenues in 2019 result in higher government spending but lower tax revenues from 2020 onwards imply spending cuts. - GDP level is higher in 2019 and 2020 relative to the case with no expenditure changes, but undershoots in 2021–23 following expenditure cuts. - The simulations suggest the Law could boost medium-term growth by around 0.2 percent of GDP but will reduce tax revenues by over ½ percent of GDP in the medium-term. ### Caveats and limitations of the dynamic analysis - Simulations likely reflect an upper bound because they assume full credibility and permanence. - If agents expected future tax revenue measures (rather than expenditure cuts) to correct projected revenue losses from 2020, the impacts could differ — notably, if the lower corporate burden were not perceived as permanent, the investment impact would be significantly lower, especially in the long-run. - The model does not consider informality and misallocation; if lower corporate burden reduces informality and misallocation, results could be larger. - The framework does not allow for endogenous firm creation; more firm creation in response to lower corporate tax burden could further boost activity. - Potential impacts on inequality and poverty are not considered by the framework. ### Conclusion — fiscal and distributional summary - Non-oil tax revenues in Colombia remain comparatively low despite recent reforms; Colombia retains a complex tax code and collects relatively low revenues from PIT and VAT relative to regional peers and OECD countries. - The Financing Law introduced three higher PIT rates and a wealth tax to improve progressivity; it reduced corporate tax burden by lowering CIT rates, crediting subnational ICA tax against CIT, and allowing input credit for VAT on capital goods. - The Financing Law should raise tax revenues in 2019 by 0.7 percent of GDP (mainly from VAT base changes and PIT, wealth and dividend rate changes) but will likely create shortfalls thereafter. - A gradual reduction in CIT rates and allowing VAT credits for capital goods and subnational ICA tax will more than offset revenue gains and likely curb tax revenues from 2020 onwards. - The number of significant special tax regimes adopted is an additional concern that will further undermine tax revenue as a percentage of GDP. *International Monetary Fund. April 8, 2019.* ### 1. Other Tax Measures in the Financing Law ______________________________________________ 9 ### 1. Other Tax Measures in the Financing Law ### Summary findings - Colombia passed a Financing Law (FL) in December 2018 to raise revenues and improve competitiveness while operating within the expenditure envelope approved by Congress. - The analysis finds that the Law may boost medium-term growth by around 0.2 percent of GDP but may lead to future tax revenue shortfalls starting in 2020. - Colombia’s tax revenue was 13.6 percent of GDP (central government, 2016) compared to 17.7 percent on average for regional peers and 20.3 percent OECD average. - The FL is expected to yield additional revenues in 2019, but from 2020 onwards reducing the tax burden on corporations (lower CIT rates, VAT credit for capital goods, crediting municipal taxes) is expected to result in net revenue losses. ### Static revenue impacts (expected revenues from the Financing Law, 2019–22) - Overall static effect on revenue: - 2019: 0.73 percent of 2018 GDP (Col$7,130 billion) - 2020: -0.23 percent of 2018 GDP (Col$-2,218 billion) - 2021: -0.39 percent of 2018 GDP (Col$-3,768 billion) - 2022: -0.77 percent of 2018 GDP (Col$-7,500 billion) - Detailed measures (Revenue as a % of 2018 GDP): - VAT: Expansion to entire commercial chain for beer and soft drinks — 2019: 0.09; 2020: 0.10; 2021: 0.11; 2022: 0.12 - Excises (INC): Sale of real estate above 26,800 UVT (2%) — 2019: 0.17; 2020: 0.19; 2021: 0.20; 2022: 0.22 - PIT: Merger of PIT schedule and new top marginal rates (35%, 37%, 39%) — 2019: 0.19; 2020: 0.21; 2021: 0.23; 2022: 0.24 - Wealth tax (1% for net assets above COP 5 bl) — 2019: 0.08; 2020: 0.09; 2021: 0.09; 2022: 0.00 - Flat rate on dividend (15% residents) — 2019: 0.05; 2020: 0.05; 2021: 0.05; 2022: 0.06 - Reduction of CIT rates (2020: 32%, 2021: 31%, 2022: 30%) — 2019: 0.00; 2020: 0.00; 2021: -0.13; 2022: -0.27 - VAT credit against CIT for acquisition of capital goods (100%) — 2019: 0.00; 2020: -0.63; 2021: -0.68; 2022: -0.73 - Gradual elimination of presumptive income tax (2019-20: 1,5%, 2021: 0%) — 2019: 0.00; 2020: -0.14; 2021: -0.15; 2022: -0.27 - Credit for ICA against CIT (2019-2021: 50%, 2022: 100%) — 2019: 0.00; 2020: -0.16; 2021: -0.18; 2022: -0.20 - Final withholding on distribution of dividends (non-residents: 7,5%) — 2019: 0.04; 2020: 0.04; 2021: 0.04; 2022: 0.05 - Supplementary rate on financial sector (2019: 4%, 2020 y 2021: 3%) — 2019: 0.00; 2020: 0.03; 2021: 0.02; 2022: 0.02 - DIAN normalization 2019 — 2019: 0.10; 2020: 0.00; 2021: 0.00; 2022: 0.00 ### Macroeconomic impact and model simulation results - GIMF simulations indicate: - The direct growth impact of tax measures will boost GDP growth by 0.2 over ten years in the model. - Growth arises from higher investment due to the reduction in the corporate tax burden. - Cuts in government spending will be required to plug an increasing revenue gap unless alternative revenue is identified. - Static losses to net revenues could be larger in the longer term due to new special regimes; positive GDP growth effects on revenues would have to be sizeable to offset static revenue losses. ### Major tax policy changes in the FL - Corporate taxation: - Gradual reduction in CIT to 30 percent in 2022 (from current 33 percent), slower pace for financial sector. - Elimination of presumptive tax (gradual). - Allows direct credit of VAT for capital goods against CIT (estimated cost 0.6 percent of GDP). - Crediting municipal ICA tax against CIT: 50 percent credit initially, rising to 100 percent in 2022; official estimate of central government cost 0.4 percent of GDP when fully effective in 2023 (not included in Table 1). - New preferential corporate regimes (mega-proyectos, orange economy, some agricultural projects, tourism) with low 27 percent CIT for some and other benefits. - Personal Income Tax (PIT): - Merge of income schedules into a single schedule with exempt range of 1090 UVTs (previously up to 2290 UVTs across multiple schedules). - New top marginal rates for labor income: 35 percent, 37 percent and 39 percent — DIAN estimates less than 2,000 taxpayers affected and combined effect with schedule merger to raise 0.2 percent of GDP. - Generous deductions remain (up to 40 percent of income for qualifying expenditures; ceilings in UVTs such as 2,500 UVTs for voluntary pension contributions). - Wealth tax: - Temporary reintroduction of a flat 1 percent tax on net assets above COP 5 billion for three years; housing excluded up to 13,500 UVTs and low-income dwellings generally excluded. - Additional revenue estimate of 0.1 percent of GDP noted as optimistic given higher threshold relative to prior tax. - VAT and excises: - VAT applied throughout the value-added chain for beer and soft drinks (DIAN estimate 0.1 percent of GDP additional revenue). - Special consumption tax (INC) not included in VAT base for these goods. - Introduction of indirect tax on digital services (no specific revenue attached). - Corrections to VAT loopholes for Zonas Francas transactions; exemptions and special 5 percent rate remain significant tax expenditures. ### Risks, uncertainties, and distributional implications - Key risks to revenue estimates: - The VAT credit for capital goods could cost more than estimated if the legal interpretation of “fixed assets” proves broader than “capital goods”. - The revenue effect of the VAT credit assumes all companies have sufficient CIT or presumptive tax to use the credit; if not, initial effects may be lower as credits are spread over time. - Crediting ICA against CIT may transfer resources from central government to richer municipalities and could cost more than official estimates given ICA currently collects nearly COP8 billion (over 0.8 percent of GDP). - New preferential regimes create difficult-to-quantify long-term revenue losses and complex administration challenges for DIAN. - Distributional implications: - PIT changes increase progressivity modestly through higher top marginal rates and schedule merger, but generous exemptions and deductions limit overall progressivity. - Wealth tax targets high-net-worth households but design features (threshold size, exclusion rules, inclusion of historic share values) introduce uncertainty and potential avoidance incentives. *International Monetary Fund. April 8, 2019.* ### Box 1. Other Tax Measures in the Financing Law ### Box 1. Other Tax Measures in the Financing Law ### Presumptive tax elimination - A mandated tax base floor of 3.5 percent on net assets (the presumptive tax) existed until 2018. - The presumptive tax will be gradually eliminated; DIAN estimates full elimination in 2021 will cost 0.2 percent of GDP, assuming those who pay today are in a loss position and will have no CIT base. - The projection assumes taxpayers currently paying CIT on a basis just above 3.5 percent of net assets will not reduce their tax in the absence of the presumptive minimum; the text notes this might be an optimistic assumption. - The revenue impact could have been softened by allowing firms to credit the tax against future CIT, with a relatively long carry forward period. ### Dividend taxation and withholding - Tax on dividends for residents increased to a flat rate of 15 percent, starting in 2019. - Dividends are not subject to the PIT progressive rate schedule; they are taxed separately at the shareholder level. - Previous top marginal rate was 10 percent at 1,000 UVTs or more, with 5 percent and 0 percent rates applied to lower dividend amounts. - Withholding on dividends was set at 7.5 percent, creditable against the final tax. - Foreign residents are subject to a final withholding of 7.5 percent (before it was 5 percent) or lower depending on double taxation treaties. - The measure was estimated to raise about 0.1 percent of GDP, though the estimate is uncertain because the higher tax may inhibit formal dividend distributions. - There is uncertainty about the vintage of dividends to be taxed, since distributions may originate from profits from previous years, including prior to 2017. - Tax treaties will keep the withholding rate for an important (but unknown) proportion of dividends to foreign residents unaltered. ### Deemed distributions and non-deductible shareholder expenditures - Deemed dividend distributions are not recharacterized in Colombia’s tax law. - Companies may incur expenditures on behalf of final shareholders that should be non-deductible and considered deemed distributions, subject to withholding and to PIT at the flat 15 percent rate. - Without such recharacterization, there is a strong preference for companies (typically through Sociedades Anonimas Simplificadas) to spend on behalf of the shareholder instead of distributing dividends. ### Interest earnings taxation (inflation adjustment) - The inflation adjustment of the tax base of individuals’ interest earnings was eliminated. - Previously, legal persons paid tax on nominal interest while individuals paid on real interest; the Financing Law normalized the tax base to nominal interest. - This will increase revenue for the budget but may have a regressive effect because smaller deposits, which typically yield lower real interest rates, will now face a higher tax burden. ### Excise on real estate sales - The Financing Law introduces a new excise on the sale of new and used real estate at 2 percent. - The tax applies to buildings above (approximately) US$280,000; it applies to the whole value of the property when above that threshold. - The tax does not apply to low income housing developments. - The excise replaces a VAT at 5 percent (2018) on new residential housing and is estimated to increase revenues by 0.1 percent of GDP. - The main revenue reasons: the credit for input-VAT will no longer be claimed and the new tax includes used buildings. ### One-off “normalization tax” - A one-off “normalization tax” allows undeclared income, if declared, to avoid penalties and be taxed at a one-off rate of 13 percent. - The program projects Col$1 billion in 2019 (noted as a conservative projection given past events where tax revenue from a normalization scheme in 2017 was Col$1.8 billion). - Factors that may dampen success: - Well-founded suspicion this will not be the last normalization program, given past experience. - Not all bilateral administrative procedures have been put into place to secure full advantage of exchange of tax information. - PIT is not the only relevant comparison tax; wealth and inheritance taxes also matter. - A 50 percent discount is granted if the repatriated asset stays in Colombia for two years. ### Macroeconomic effects — model-based assessment (GIMF) - The full effects of the 2018 Financing Law are assessed using the Colombia country block of GIMF. - Simulations assume all tax and expenditure measures are fully credible and permanent. - Simulations examine components sequentially: - Higher VAT and excise taxes (impact transmitted largely through household consumption). - Addition of taxes on personal income, dividends and wealth (affect household resources). - Addition of lower corporate tax rates and credit of VAT on capital goods (operating through higher firms’ profits). - Addition of government spending changes to keep the headline government deficit unchanged and government debt as a share of GDP unchanged in the long-run (assumes 75 percent of any change is on government investment and the rest on government consumption). Key quantitative simulation findings (as stated) - Tax revenue measures from VAT and PIT reduce the level of GDP by 0.3 percent relative to baseline on impact, and by 0.2 percent in the long-run. - Lower corporate taxes and the credit of VAT on capital goods: - Boost capital accumulation and potential output. - Raise permanent income and consumption. - Near-term monetary authority increases interest rates; imports increase and the current account deficit widens. - Overall tax revenues are lower relative to the baseline: one percent on impact and around 2½ percent in the long-run. - Government deficit rises by over ½ percent of GDP in the long-run; government debt increases. - Government expenditure cuts beyond 2019 are needed to offset tax revenue losses to meet the fiscal rule’s deficit targets. - Additional revenues in 2019 result in higher government spending but lower tax revenues from 2020 onwards imply spending cuts. - GDP level is higher in 2019 and 2020 relative to the case with no expenditure changes, but undershoots in 2021–23 following expenditure cuts. - The simulations suggest the Law could boost medium-term growth by around 0.2 percent of GDP but will reduce tax revenues by over ½ percent of GDP in the medium-term. ### Caveats and limitations of the dynamic analysis - Simulations likely reflect an upper bound because they assume full credibility and permanence. - If agents expected future tax revenue measures (rather than expenditure cuts) to correct projected revenue losses from 2020, the impacts could differ — notably, if the lower corporate burden were not perceived as permanent, the investment impact would be significantly lower, especially in the long-run. - The model does not consider informality and misallocation; if lower corporate burden reduces informality and misallocation, results could be larger. - The framework does not allow for endogenous firm creation; more firm creation in response to lower corporate tax burden could further boost activity. - Potential impacts on inequality and poverty are not considered by the framework. ### Conclusion — fiscal and distributional summary - Non-oil tax revenues in Colombia remain comparatively low despite recent reforms; Colombia retains a complex tax code and collects relatively low revenues from PIT and VAT relative to regional peers and OECD countries. - The Financing Law introduced three higher PIT rates and a wealth tax to improve progressivity; it reduced corporate tax burden by lowering CIT rates, crediting subnational ICA tax against CIT, and allowing input credit for VAT on capital goods. - The Financing Law should raise tax revenues in 2019 by 0.7 percent of GDP (mainly from VAT base changes and PIT, wealth and dividend rate changes) but will likely create shortfalls thereafter. - A gradual reduction in CIT rates and allowing VAT credits for capital goods and subnational ICA tax will more than offset revenue gains and likely curb tax revenues from 2020 onwards. - The number of significant special tax regimes adopted is an additional concern that will further undermine tax revenue as a percentage of GDP. *Source: Box 1. Other Tax Measures in the Financing Law, IMF country report content provided.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2019/1colea2019002.pdf_