November 28, 2018 / 7:32 PM / a year ago

Colombia to present diluted tax plan for vote, lawmakers say

BOGOTA, Nov 28 (Reuters) - Colombia’s government on Wednesday will present to full congress a tax reform bill with about half its original revenue target, leaving it struggling to cut spending or alter fiscal goals and find ways to satisfy credit rating agencies, lawmakers said.

After days of discussion in congressional committees, Finance Minister Alberto Carrasquilla’s original bill to raise as much as 14 trillion pesos to fund next year’s budget was altered and diluted down to between 6.5 and 7 trillion pesos, according to committee lawmakers consulted by Reuters.

Amid fierce opposition, the government withdrew a proposal to tax basic foodstuff, leaving the finance ministry with the option of cutting 4 trillion pesos in costs - like social programs - and raising the fiscal deficit, the lawmakers said.

The draft, which may still change, will be registered in congress later on Wednesday and voted on in days.

The controversial plan to place value-added tax on basic food had been the backbone of Carrasquilla’s plan to raise the bulk of the revenue in the reform, known as the financing law.

The VAT plan was roundly criticized for being a tax on the poor that would stoke inflation.

“Having made a decision in congress to not touch anything that has to do with VAT, it mutilates to a high degree the possibility of filling the gap of 14 trillion pesos,” said Oscar Dario Perez, a lower house lawmaker from the ruling Democratic Center party, who also heads the commission.

Government and congressional sources told Reuters the idea of raising the 2019 fiscal deficit target from 2.4 percent is being studied, along with adjusting the so-called fiscal rule.

The fiscal rule aims to cut the central government deficit to 1.0 percent of GDP in 2027.

Changes to the deficit may not be looked at favorably by credit rating agencies which want it reduced and had called for a deep structural tax reform.

Moody’s revised the outlook on its Baa2 rating to negative from stable in February. That followed a S&P’s decision to downgrade Colombia’s credit rating in December to BBB-, one notch above junk, citing concerns over the government’s ability to adequately cut the fiscal deficit.

Among proposals to be voted by congress in the coming days are raising income tax on middle-class and high earners, reducing business taxes, and combating evasion. (Reporting by Carlos Vargas, Nelson Bocanegra and Helen Murphy; Editing by Richard Chang)

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