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While The 1% of the largest companies in the country, according to their income level, have an effective tax rate (ETT) of 22%an important group of companies Smaller ones, on the other hand, have a rate of 29%, despite having considerably lower sales.
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This is shown in a report presented by the Fiscal Observatory from the Javeriana University on tax inequality in Colombia, according to which “companies whose gross income is higher have more resources, benefits and strategies available to reduce their tax burden, which is reflected in a lower effective rate.”
The report begins by remembering that the income tax for legal entities in the country may differ from the nominal rate of 35% due to exemptions, surcharges, deductions and incentives that influence the taxes they actually end up paying.
This is where the big difference is between what one organization pays or another. In any case, the Fiscal Observatory divides companies into five groups or percentiles. In the first are 28% of the companies, which are the smallest, and which Due to their level of income and usual losses, they end up paying 2% in income tax.
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Regressivity
Then the problem begins. In the second group there are 22% of companies are next in size to the smallest, and these pay an effective rate of 29%.
This, according to the report, is because “while they have sufficient income to be subject to income tax, they are not large enough to benefit from the tax deductions available to larger companies.”
After this batch of 50% smaller firms, it remains in size a group that represents 40% of the business fabric, in which the rate paid in taxes is 26%.
And later comes the batch of 10% of the largest companies in Colombia, in which 23% is taxed; Furthermore, there is a 1%, which are the “largest of the large”, for which the rate drops even more, and is 22%.
“The central problem lies in the tax inequality that this reflects. Once a company is profitable enough not to face losses, it now finds itself with a higher effective income tax rate than its largest competitors. what slows down its expansion and development”, mentions the Observatory.
“We need more fair and equitable taxation, but that does not only happen through natural persons, but also through legal entities. This is important because there are two types of equity: one is the one we all know, between people (…) but there is another type of equity, which is about that economic activities with similar characteristics pay exactly the same tax“said Oliver Pardo, director of the Fiscal Observatory.
The latter, he added, is equity in justice and efficiency, because when privileged treatments are given to certain economic activities, resources are redirected towards them, such as work, capital and land; but if they have no advantage relative to the others, a distortion is generated in poverty and in the economic performance of the country.
Colombia vs the OECD
According to figures from Confecámaras, by 2022, 1.73 million formal companies were registered in Colombia, of which 92% corresponded to microenterprises, 5.9% to small companies, 1.6% to medium-sized companies, and 0.5% to large companies.
Last November, Colombia ranked first among the member countries of the Organization for Economic Cooperation and Development (OECD) with the highest tax burden on companies on profits.
According to the international organization, Colombia has the highest tax burden for companies, with a nominal income charge of 35%, a rate that has been growing, given that for 2021 it was at 21%; The country is followed by Australia, Mexico and Portugal, each with 30%.
