“Newly elected Colombian President Gastavo Petro proposed a new bill which will raise the tax for rich people to 200%. The tax bill will help bridge the unequal gap between the poor and rich class. The move by the new presidents stirs big debate in the country about wealth tax and its impact.“
President Gustavo Petro has proposed a new plan to “tax the rich” to battle poverty and inequality in Colombia. Just a while after Petro swore as Colombia’s new President, he announced the wealth tax plan which might soar the tax imposed on rich Colombians to 200% as well as raise the funds for battling poverty, inequality, and other welfare programs to an astonishing $11.5 Billion.
While this news is going to shake up things in the houses of wealthy Colombians living in Bogota and Medellin, the real impact will positively alleviate the struggles and financial hardships that most Colombian people face every day.
Gustavo Petro rose to power by making promises about social welfare programs, reducing the inequality in the country when the country was riddled with an economic crisis during the Covid Pandemic.
The history of taxes in Colombia
Colombia is one of the most unequal countries in the Americas. Most of the laws implemented throughout the previous decades have been plans to eradicate the mass poverty and hardships of the people. But, time and again, most of these plans have failed. Like the tax rate plan to charge 0.5% tax on assets above $600k which will be raised to a 1% tax rate charge for assets over $1.1 million. On the surface level, the tax plan introduced by the President looked similar to the previous one.
At the forefront, the new tax bill will work on the principles of other past plans. The tax will increase as the income increases. The higher the asset’s price, the higher the tax rate. For assets like property and savings above $630k, a yearly wealth tax will be implemented. A huge 10% tax will be added on heavily exported products like oil, gold, coal, etc.
But on much scrutiny, the plan has more to it than it shows.
The critical difference which will soar the tax above 200% would be the methodology. The tax demands the payer to declare their assets by their original price point or at their current value, which was not previously implemented in other tax plans. Experts believe this small detail is the game changer.
Thomas Piketty as an Advisor
President Petro had appointed the famous French economist Piketty as one of the advisors for this plan. Piketty is renowned for his exceptional prowess in understanding capitalist political scenarios as well as wealth inequality.
The proposed bill would be implemented on assets such as real estate, and stocks held till the last day of the year.
The new President also believes if and when the proposal is passed through congress, it will mark a historical moment for his presidency which had accomplished what they had promised, that is to reduce the gap between the poor and the rich in Colombia, where wealth inequality is prominent.
The approved plan will also rush the rich people to whisk money out of the country, and with due diligence on illegal transfers of money, Petro could also weed out corruption. Experts like Juan Ortega believe most of the money would end up in Panama, the infamous destination for corrupted wealth and people.
Impact on the Private Sector
People like Alvaro Uribe are worried about the impact that the bill might have on the Private sector. While he appreciates the efforts made by the current government to overcome poverty, he is also worried about the state of the Private sector after the bill could be implemented as when the bill is publicly introduced, many private sector job creators will rush out of the country to look for “better” tax policy in other countries as well as dampen investments. All of this might deepen the root causes of poverty such as unemployment and funds for new projects.
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