Although taxes are one of the most important sources of income for any country and the resources obtained through this concept are generally used to promote development, a poor distribution of burdens on this issue can be counterproductive and affect economic growth, mainly with regard to small and medium-sized businesses.
In the case of Colombia, this seems to be a scourge that has not been overcome or at least that is what is noted in a report from the Fiscal Observatory of the Javeriana University in which it is noted that the larger a firm, the their tax burden is lower, leaving those who are just starting out as the most affected.
Taxes
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Oliver Pardo, director of the Observatory, indicated that one of the great conclusions of this analysis is that companies that become profitable so as not to have losses, find a growth barrier by having a higher effective tax rate than their larger competitors. size.
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“In the Colombian context, the review of effective tax rates It is essential not only because of the erosion of tax collection and justice. The tax structure could be contributing to the concentration of companies at the extremes of the income scale, meaning a relative shortage of medium-sized companies, as smaller companies could face a proportionally higher tax burden than large companies, making it difficult its transition to a larger size,” he explained.
Taxes.
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As this academic mentioned, the element used to compare the tax burden was the effective tax rate (ETT) of companies, which he recalled is a key indicator to understand the fiscal pressure that they bear and makes it clear that equity prosecutor has been a topic of controversy.
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“In this investigation, we found evidence that shows the disparity that exists in the income tax paid by companies of different sizes during the tax year 2022. In simple terms, the TET of the income tax for legal entities may differ from the nominal rate of the 35% as a result of exemptions, surcharges, deductions and incentives that influence the taxes actually assumed by companies,” said Pardo.
Microbusinesses
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In concrete data, according to the Javeriana Observatory, currently in Colombia, companies with low income have a high effective tax rate, around 29%, while as they move towards higher income levels, the effective tax rate decreases. gradually, until reaching 20% for the largest companies.
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“We obtained the TET for five company size categories, organized from smallest to largest. 28% of the smallest companies (in terms of revenue) have a very low TET (barely 2%). This is explained because their income is low and the majority face losses and, therefore, do not assume an income tax. However, for the next largest 22%, the TET increases significantly to 29%,” the report highlights.
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According to the conclusions and findings, these are the companies that face the highest effective rate of taxation and although they have sufficient income to be subject to income tax, they are not large enough to benefit from the tax deductions available for larger companies. big.
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“For the 40% of companies that remain in size, the TET decreases and falls to 26%. For the next 9% of the largest companies the TET decreases further and falls to 23%. Finally, For the 1% that groups the largest companies in the country, the TET is barely 20%,” they added.
Oliver Pardo, director of the Fiscal Observatory of the Javeriana University.
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From the Fiscal Observatory of the Javeriana University it was indicated that these results show that larger companies have more resources, more benefits and more strategies available to reduce their tax burden and face a lower effective tax rate and that the central problem lies in the tax inequity that this reflects.
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“Once a company is profitable enough In order not to face losses, it now finds itself with an effective income tax rate higher than that of its largest competitors, which slows down its expansion and development,” said Oliver Pardo.
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That is why these academics closed by indicating that they are concerned about the inequity that occurs in the taxation of companies, since for them, this not only translates into an erosion of collection and fiscal injustice, but it is also a neck bottle for competition, innovation and economic development.
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Likewise, they called on the country’s authorities to carry out a tax reform that promotes a more equitable distribution of the tax burden and promotes business diversity, tax justice and economic growth, taking into account that tax benefits They are so numerous and complex that calling for their elimination is not a realistic option.
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“We suggest two complementary actions. The first would be to reinforce the minimum tax payment by increasing the minimum rate introduced in the 2022 tax reform from 15 to 20%. The second consists of introducing increasing marginal rates with taxable net income, as is the case of natural persons”, they concluded.
In this sense, they closed by explaining that with the marginal rates increasing with taxable net income would seek to counteract the lower effective rate faced by large companies and ensure that smaller companies are not disadvantaged and that such a scheme assumes that taxable net income is proportional to gross income, which is true if Profit margins (profit as a proportion of revenue) are relatively constant.
