A Very Respectable Four Percent

By Global Tax Weekly

Colombia’s recent economic track record is quite remarkable given the internal strife that continues to blight the country. Large swathes of rural Colombia remain no-go zones for those not affiliated with the FARC guerrilla movement, which the Government has been battling (literally) for 50 years. Yet, the economy has been growing at a very respectable four percent a year for the past four years, stretching a trend of unbroken economic growth which has lasted a decade. Colombia also attracted record levels of foreign investment last year after all three international credit rating agencies upgraded the Government’s debt to investment grade. Not bad for a country seemingly in a perpetual state of civil war. It’s also pretty impressive when you consider how bad the country’s tax system is. As the OECD pointed out recently, the combined statutory corporate tax rate of 34 percent (consisting of the 25 percent headline corporate tax and a nine percent “equity” tax on corporate income) is high even by OECD standards. But it gets worse. According to PwC, the total tax rate, made up of corporate taxes, labor taxes, and other taxes paid by businesses in the country, is a whopping 75 percent. Out of the 189 economies in PwC’s annual Paying Taxes survey, only six have a higher total tax rate (Palau, Tajikistan, Eritrea, Bolivia, Argentina, and, topping the list, Comoros, if you’re curious). Coupled with the fact that it takes businesses 239 hours on average to comply with their taxes, Colombia gets a very bad score indeed from PwC, and an overall ranking of 146th. Presumably, investors must be finding ways around these taxes (legitimately of course!) otherwise you’d expect foreign investment levels to be a lot lower. But just imagine what an economic powerhouse Colombia could be if it had a more sensible tax system.

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