Cablegate: Colombia Tax Reforms of Limited Benefit

This record is a partial extract of the original cable. The full text of the original cable is not available.

id: 16573
date: 5/3/2004 19:36
refid: 04BOGOTA4483
origin: Embassy Bogota
This record is a partial extract of the original cable. The full text of the original cable is not available.

----------------- header ends ----------------




E.O. 12958: N/A

(SBU) Summary: With a total public sector revenue reaching
30% GDP, Colombia,s ability is limited to using additional
taxes to further reduce its external debt. Nevertheless the
GOC is pushing for tax reforms to streamline IMF-mandated tax
adjustments enacted in December 2003 and to increase revenue.
These are in line with tax reforms proposed in President
Uribe,s failed public referendums. Political focus on
re-election and reform of Colombia,s pension system and the
federal budget will likely delay tax reform proposals. End

2. (SBU) President Uribe called for an across-the board 2
percent increase in Colombia,s Value Added Tax (VAT) on all
consumer basket items to increase government revenue. In a
presentation to the National Association of Financial
Information (ANIF), Minister of Finance Carrasquilla proposed
a progressive tax on pensions and a revision of the current
tax system to close loopholes and put an end to
"distortional8 taxes on financial transactions, inheritance,
and certain procedural duties ("timbre") (A previous attempt
to increase the value added tax in the 2002 reform was ruled
unconstitutional by the Constitutional Court).

4. (SBU) Although the GOC passed IMF-mandated tax reforms
in December of 2003, Uribe says his proposals represent a
clearer, less-distortionary way to generate additional
revenue. The reforms passed in December are expected to
raise USD 710 million this year, 350 million USD less than
the reforms in Uribe,s failed public referendum. It remains
unclear whether the GOC will have sufficient political
support to propose tax restructuring during 2004. IMF
officials have expressed confidence that the GOC will make
the necessary near-term expenditure adjustments to make up
the shortfall associated with the December 2003 tax package
and meet their 2004 deficit target (2.5% of GDP). Moreover,
local Fund economists and Fund officials say that pension and
federal budget reforms are far more important to Colombia,s
long-term fiscal health than Uribe,s tax proposals.

5. (SBU) Comment: Colombia,s recent tax reforms are a
major step forward toward meeting IMF fixed targets, but fall
short of long-term GOC expectations for a streamlined,
progressive tax structure. With the GOC focused on pension
and budget reform, further changes to the tax system are
likely to be postponed. End Comment.

=======================CABLE ENDS============================

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