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Colombia's newly approved tax reform law will impose high penalties for tax evasion

Wednesday, 4 January, 2017

In the STEP LATAM News Digest of November 30, we reported that Colombia's government was planning to institute a tax reform. In late December, the tax reform bill became Law 1819 of 2016 – providing for structural reform of the tax system and severe penalties for those who evade taxes.

Law 1819 of 2016

On December 22, 2016, the Colombian Congress approved the tax reform bill. It was later signed into law by President Juan Manuel Santos and took effect from January 1, 2017.

According to news reports, the structural tax reform includes the elimination of the country's wealth tax, but among the most significant measures is the provision for jail sentences of between four and nine years and elevated fines for those found to use contrived mechanisms to evade taxes.

Fit for purpose?

Many have welcomed a tougher stance on tax evasion. However Colombia's Prosecutor, Néstor Humberto Martínez, has criticised the reform plans. According to reports, Martínez wrote a letter to the Minister for Finance raising his objections to the tax reform and claiming that the anti-evasion article of the Law (whereby tax evaders will be punished for omitting assets in their tax returns) is insufficient to ensure compliance with the new rules.

He is quoted saying: "[T]he initiative […] penalizes the 'omission of assets' in tax returns, a conduct that will not have any relevance from the criminal point of view, to the extent that it is impossible to characterize this conduct. In fact, as you know, income taxpayers do not make a list of assets [in their tax returns], so this behavior can never be attributed."