Petro’s Tax Reform Fails in Congress

The economic committees of both Chambers of the Congress of Colombia voted against the tax reform bill presented by the government of President Gustavo Petro. The proposed legislation, aimed at raising $9.8 trillion COP to address the budget deficit for 2025, was rejected. 

With this decision, the Ministry of Finance, led by recently appointed Diego Guevara, will need to adjust the funding available for the Colombian government’s operations in 2025. The reform had been drafted by former Minister Ricardo Bonilla, who resigned earlier this month following a corruption scandal involving another entity from the government.

A predictable consensus?

The defeat was secured with votes from the right-wing opposition parties, independent parties (including the Liberal and Conservative parties, both of which had previously expressed their discontent through official statements), and some members of the Green Party, despite its partial alignment with the government. Only the left-wing parties in the governing coalition supported the bill.

Congressmen Miguel Uribe and Christian Garcés, who presented their arguments against  the bill, pointed out that the reform was inconvenient and asserted that it further affected an economy that is not going through its best moments. 

“The tax reform is not convenient, it is designed to discourage business formalization, increase the tax burden on individuals, erode investment and savings,” Uribe argued.

Other strong arguments were the low execution rate of the current budget —according to Dapper, as of November 2024 the budget execution rate was the lowest since 2019— and the potential consequences of eliminating the Simplified Tax Regime (RST), which the reform had proposed. Introduced to boost business and labor formalization in Colombia, the RST simplified taxation for small businesses by basing it on gross income rather than net profit.

Luis Fernando Mejía, CEO of the Colombian think tank Fedesarrollo, voiced his concerns about the viability of the project on Twitter/X just hours before the proposal was rejected. 

Mejía criticized measures such as tripling the carbon tax, due to its negative impact on the productive sector, and also warned that the reform would introduce a “minimum presumptive dividend,” a concept that could lead to double taxation on 30% of corporate profits, creating uncertainty and further discouraging investment. Also, he suspects “presumed minimum dividend” could result in double taxation on 30% of corporate profits, potentially creating uncertainty and further discouraging investment.

Earlier this year, president of AmCham Colombia Maria Claudia Lacouture also expressed her concern with the bill in an interview with La República, pointing that “In the current context of economic slowdown, with multiple pressures keeping growth below 1.2%, the best tax reform would be austerity and public spending execution, combined with strategies to foster investment, build trust, and create certainty. This approach could not only generate short-term investment but also attract foreign investment to the country.”

Petro’s administration to face the consequences — and the year to come

Government officials who attempted to save the reform at the Congress expressed their disappointment at this failure. President Gustavo Petro, through his Twitter/X account, offered hints about the government’s future tax policies, stating: “The budget crisis will not be paid for by the people,” meaning that social programs would remain unaffected, and added: “The fight against tax evasion, starting with online gambling and smuggling, must become a central priority.” 

Additionally, with discussions on the labor reform bill proposed by Petro’s government postponed until 2025, Petro suggested that this delay “must be compensated by [a significant increase in] the minimum wage.”

Finance Minister Diego Guevara, according to El Tiempo, described the death of the tax form bill as more than just a ‘fist’ to President Petro, stating: “This is a vote against the regions, a vote against investment,” meaning it is as a setback for regional investment in Colombia and development projects.

The coming year, 2025, will be the last before the 2026 presidential election to determine Gustavo Petro’s successor. In this context, the 2025 budget will now be established via a decree, adjusted to exclude the revenue the failed reform sought to generate.

Headline Photo: Capitolio Nacional (Photo: Oficina de Información y Prensa Cámara de Representantes)