According to the report from the Fiscal Observatory of the Javeriana University, the results show that they have more resources, benefits and strategies available to reduce their tax burden and face a lower effective tax rate.
The Fiscal Observatory of the Javeriana University presented this Tuesday a report on the disparities in the effective tax burden faced by companies of different sizes during 2022 in Colombia.
It is worth mentioning that the effective tax rate (ETT) of companies is a key indicator to understand the tax pressure that they bear. According to the document, “taxation constitutes the basis for the provision of public goods and services. However, tax equity has long been a topic of controversy, with debates focusing on the discrepancies between the tax burdens borne by different entities.”
The phenomenon of large companies paying low taxes on corporate income has gained relevance globally, “generating widespread concern about its implications for economic equality and the integrity of tax systems.”
The report revealed that large companies in Colombia pay proportionally less income tax than small and medium-sized companies, highlighting significant disparities in the Colombian tax system.
However, for the next largest 22%, TET increases significantly to 29%. “These are the companies that face the highest effective tax rate. “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 businesses,” the report says.
As explained by the observatory, 28% of the smallest companies (in terms of income) 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.”
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 it is barely 20%.
The results show that larger companies have more resources, benefits and strategies available to reduce their tax burden and face a lower effective tax rate. The problem is the tax inequality that this reflects.
The review of the TET is essential to guarantee an equitable tax system in Colombia. Currently, the system is not progressive, meaning that small and medium-sized businesses may face a disproportionately high tax burden compared to large corporations.
“Once a company is profitable enough not to face losses, it now finds itself with an effective income tax rate higher than that of its largest competitors, which slows its expansion and development.”
From the Fiscal Observatory they are concerned about the inequity that occurs in the taxation of companies, "since this not only translates into an erosion of collection and tax injustice, but it is also a bottleneck for competition, innovation and economic development. Therefore, we call to advance a tax reform that promotes a more equitable distribution of the tax burden and encourages business diversity, tax justice and economic growth.”
However, the observatory clarifies that eliminating tax benefits is not an option, but they propose 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%.
According to the report, differentiated rates for income tax in Colombia can be an important step towards a more equitable and favorable tax system for business development. “This policy can be much more effective and easier to implement than the dismantling of tax benefits for large companies, given the large number and great variety of existing benefits, which make them difficult to even list and much more difficult to dismantle. ”.
The second action consists of introducing increasing marginal rates with taxable net income, as is the case for natural persons. “These actions would seek to counteract the lower effective rate faced by large companies and ensure that smaller companies are not disadvantaged,” the report adds.
