What Jumps Out: Debate Time – Colombia’s Tax Reform 2

The government is finally, over three months after withdrawing the first edition, set to submit Tax Reform II to Congress. Debates are set to take place over the coming weeks with Finance Minister Restrepo anticipating it’s approval by the end of Q3.

Having discussed the reform with most of Colombia—personally I didn’t get the call—the bill of 60 articles is set to be examined in depth. However, it is no longer just 60. Interestingly, having carried out extensive meetings with a mass of different stakeholders around the country, we already have changes. Reportedly 100 new ideas have been added, and four of the original ones have already been axed.

There isn’t much information on the 100 new points, we’ll see them soon enough, but they are likely the usual bargaining chips. As for the four that have been removed, the main one that impacts capital markets is the rejection of the motion to lower capital gains tax for overseas investors on TES trading from 5%-0%. To me, amid the massive social upheaval caused by Tax Reform I, this is no surprise whatsoever. It is a disappointment of course, but it is easy to forget that this tax stood at 30%+ just a few years ago. It would have been the cherry on top to some extent, and it would be a bonus if it reappeared (rule nothing out in Colombia) however given the appetizing TES rates currently on offer it shouldn’t be a deal breaker.

Rupert’s opinions & analysis as an independent expert contributor are his own and not necessarily those of Finance Colombia or the BVC.

Overall, the consensus appears to be that despite the splintered nature of Congress and the fast looming elections, we will get the bill that the country needs. It may not look exactly as it does today and there will certainly be some grandstanding on TV regarding populist aspects, however hopefully this will all be in the rear-view mirror in a few weeks.

We have seen the Fedesarrollo report recently on the improvement in confidence amongst consumers, retailers and industrialists, this despite the very gradual improvements in the COVID situation. Now we have their latest findings for August with regards to the financial sector and the stock market.

• Central Bank: We are seeing analysts slowly edging higher in terms of their outlook for YE 2021 – we now see 37.5% expecting an increase of 50bps to 2.25% & 40% anticipating 2.50%. This is likely a reaction to inflation picking up and the good GDP numbers.
• Growth: In terms of that growth we are now seeing estimates for 2021 ranging between 6.28% & 7.70% – much higher than a few months ago. In April the average was 4.8% – it has now risen to 7.2%.
• Inflation: YE 2021 inflation expectations are now averaging 4.2% – a month ago it was 3.81%, in April it was 2.80%.
• Exchange Rate: Estimating the Peso’s future is tough, the current YE average is $3775 – up from $3700 a month ago, however there are so many factors that could move those numbers.
• Investment Factors: Despite the good GDP numbers, the economy is only the 4th most important factor for money managers – instead fiscal policy is seen as the priority.
• COLCAP: Due to the recent pullback well over 80% of those surveyed are anticipating a rise in the index over the next 3 months. Only 16.2% feel it will decline. Without question the financial sector is the one seen as the most attractive with Bancolombia, Aval and Grupo Sura seen as the top three investments at this juncture.
• Full FOC Report (English) : https://tradersbvc.com.co/categorias/productos?cp=NzE=

Moving to the market and the latest Stock Market Confidence Index and we find a decline from a month ago to 94.59% however this is perhaps a reflection of the recent improvement in stock prices, in July there was more upside.

• The Buy-on-Dips Confidence Index reached 58.62%, which represents an increase of 5.1% compared to the past month.
• The Crash Confidence Index reached 65.52%, which represents an increase of 1.0 % versus July.
• Finally, the Valuation Confidence Index (how many analysts feel the market isn’t over-priced) reached 87.93%, which represents a decrease of 4.4% versus last month and again is a reflection of the uptick over the last two weeks on the stock market.
• Full SMCI Report (English) : https://tradersbvc.com.co/categorias/productos?cp=NzI=

That is about it for today – remember these are just themes that jump out at me – please refer to your local analyst, economist, salesperson or soothsayer for more details.

My regards to all,

Roops