Proposed wealth tax on Colombia’s 4,700 richest folks would increase $1 billion

On the identical day as his historic inauguration on August 7, Colombia’s newly-elected President Gustavo Petro will current his bold tax reform invoice to Congress. The proposed legislation would gather $50 trillion Colombian pesos – about $12.5 billion USD – yearly via a brand new, progressive tax system.

That is an unprecedented quantity for the Colombian state, however the coalition that makes it pacto historico It considers it a vital measure to handle the elevated fiscal deficit led by former President Ivan Duque and to finance proposed social applications designed to cut back poverty and scale back financial inequality.

Whereas the invoice is but to be finalised, a progressive wealth tax on the nation’s millionaires and billionaires will probably be a key function.

In the course of the presidential marketing campaign, Petro introduced that he would concentrate on the fortunes of 4,000 of the nation’s most prosperous households. However since his historic victory in June, his financial advisers have despatched combined messages about who will truly be topic to reform. In keeping with Colombian economist Ricardo Bonilla, the cash restrict will probably be diminished to $1 billion pesos, or $250,000 USD.

The Colombian proper reacted strongly, arguing that such a restrict would enhance the tax burden on the center class. However given the uneven distribution of wealth within the nation, that is unlikely. A Credit score Suisse report launched final 12 months discovered that the typical wealth per grownup in Colombia is just $4,854 USD, and solely 2.6 p.c of adults have a web price of greater than $100,000 USD.

Media studies counsel that Petro plans to impose a 0.25 p.c tax on belongings price over USD $250,000; 0.5 p.c on belongings in extra of $500,000 USD; 0.75 p.c on belongings over $750,000 USD; and one p.c on belongings exceeding a million US {dollars}.

The Institute for Coverage Research consulted the Wealth-X database to estimate how a lot income Petro’s property tax would generate if utilized to the wealthiest folks in Colombia. We recognized 4,740 people who had belongings of at the very least USD 5 million on the finish of 2021. Their mixed web price is $104.3 billion USD. This listing of the rich elite additionally consists of 250 people with a web price of USD $50 million or extra and a web price of USD $52.81 billion.

These 4,700+ people symbolize solely 0.009 p.c of the inhabitants, but account for about 17.3 p.c of the full wealth of the nation.

In keeping with the IPS evaluation, a direct progressive wealth tax, levied on the charges listed above and on the wealthiest 4,700+ people, would increase over $4 trillion pesos or $1 billion USD. That is about 8 p.c of the income that President Petro needs to lift.

But when we embrace a extra progressive property tax that provides a two p.c tax on belongings over $5 million USD and a 3 p.c tax on belongings over $50 million, revenues greater than doubled to $8.8 trillion pesos, or turns into US$2.2 billion.

To provide a concrete instance of how a property tax would work in observe, we will check out Luis Carlos Sarmiento Angulo, Colombia’s richest man, and the way a lot income he would contribute beneath this tax construction.

Sarmiento’s web price was listed by Forbes at US$8 billion on the shut of the market on August 1. Underneath Petro’s plan, he would pay:

+ 0.25 p.c tax on $250,000 USD between $250,000 USD and $500,000 USD;

+ 0.5 p.c on $250,000 USD between $500,000 and $750,000;

+ 0.75 p.c tax on $250,000 USD between $750,000 USD and $1 million;

+ 1 p.c tax on the remaining $7.99 billion USD.

Their complete tax legal responsibility can be $79.9 million USD. Underneath our really useful tax charges, nevertheless, he would pay greater than USD$239 million and nonetheless have a web price of over USD$7.7 billion, which is about 1.6 million occasions greater than the typical Colombian. In the meantime, adults with common or common wealth pay nothing.

Petro may have to spend so much of political capital to get its tax reform invoice handed. However given the acute inequality that at the moment exists in Colombia, it’s clear that the established order won’t change within the absence of redistribution of wealth.

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