Colombia’s first leftist president unveiled an ambitious tax plan on Monday that aims to raise up to $11 billion a year for anti-poverty programs.
Sworn in on Sunday, Gustavo Petro has pledged to fight economic inequality while investing in rural areas long plagued by drug-related violence.
Less than 24 hours after being sworn in, the new president presented a tax reform plan to the nation’s Congress that would raise income taxes on wealthy individuals and impose a 10% tax on oil exports. The bill also includes an annual wealth tax on individuals with a net worth of more than $750,000, as well as sales taxes on soft drinks and highly processed foods.
Petro, a former member of a rebel group, has said it is important for Colombia to increase government spending to fight poverty and implement a 2016 peace deal with the Revolutionary Armed Forces of Colombia that includes land reform and rural development programs.
Tax collection in the South American nation was worth about 19% of total GDP in 2020, which is slightly below the Latin American average. Members of the OECD, an organization made up mainly of developed countries, require an average of 33% of GDP in taxes.
Governments in Colombia have long struggled with tax collection because much of the population works in the informal economy. Last year, an attempt by conservative President Iván Duque to raise income tax and some sales taxes sparked massive protests in which more than 50 people were killed.
Petro’s incoming finance minister said the new tax reform plan will only seek to raise income taxes on the richest 2% of individuals. He has called on Colombia’s wealthiest citizens to accept increased taxes, and raised the issue during his inauguration speech.
“This should not be seen as a punishment or a sacrifice,” he said. “It is simply a solidarity payment that some lucky ones make to a society that has enabled them to generate wealth.”
The government has also proposed doubling the country’s 10% tax on dividends from stocks, and taxing the products of digital companies not based in Colombia. This could mean Colombians have to pay more tax on their Netflix subscriptions or on books they buy on Amazon.
Colombia’s Congress must now debate Petro’s proposed plan, which is expected to affect several areas of the economy.