Colombia: Selected Issues

IMF Staff Country Reports, April 29, 2019

Source details

Examines the impact of the Financing Law on both tax revenues and the economy.
Assesses the main tax measures introduced by the law and their dynamic impact on tax revenue through macroeconomic transmission channels.
Notes that, despite various reforms in recent years, non-oil tax revenues in Colombia remain comparatively low.

The Financing Law should raise tax revenues in 2019.
The Law will likely create tax revenue shortfalls starting in 2020.
Model-based simulations point to sizeable increases in private investment.
The simulations suggest that the Law could boost medium-term growth by around 0.2 percent of GDP.
The simulations indicate the Law will reduce tax revenues by over 1/2 percent of GDP in the medium term.
The analysis repeats that the Law may boost medium-term growth by around 0.2 percent of GDP, but it may lead to future tax revenue shortfalls starting in 2020.

The key channel identified is a lower corporate burden:
- Lower corporate income tax.
- Allowing input credit for value added tax on capital goods.
These measures drive the projected sizeable increases in private investment and the medium-term growth boost.

Short-term revenue gain in 2019 versus medium-term revenue loss implies trade-offs between growth-supporting tax measures and fiscal sustainability.
The identified corporate tax reductions and VAT input credit on capital goods are central drivers of the projected outcomes and should be focal points for monitoring and potential compensating measures.

Source: Colombia: Selected Issues (April 29, 2019).

Colombia: Selected Issues; IMF Country Report No. 19/107; April 8, 2019
- Colombia: Selected Issues; IMF Country Report No. 19/107; April 8, 2019 (Markdown version)
- Colombia: Selected Issues; IMF Country Report No. 19/107; April 8, 2019 (PDF)