Bulletin No. 12 – Analysis of the increase in the effective tax rate (TET) from 2022 to 2025 if the tax reform project is approved
NATURAL PERSONS
Analysis of the increase in the effective tax rate (TET) from 2022 to 2025 if the tax reform project is approved
Two income scenarios are developed: i) medium-high and ii) high, with assets equivalent to 6 times the annual income.
The income and the value of the UVT[1] are the same for the three years 2022, 2024[2] and 2025.
The TET is: the income and wealth tax divided by the income of the period.
2. Exercise
Scenario No. 1 Annual income $360 M ($30 per month) and assets $2,160 M
Scenario No. 2 Annual income $3,000 M ($250 per month) and assets $18,000 M
Scenario No. 1 Scenario No. 2
Concepts | Years | Years | ||||||
2022 | 2024 | 2025 | 2022 | 2024 | 2025 | |||
Rent | ||||||||
Imcome | 360 | 360 | 360 | 3.000 | 3.000 | 3.000 | ||
Decreases | (163) | (94) | (94) | (321) | (147) | (147) | ||
Taxable base | 197 | 266 | 266 | 2.679 | 2.853 | 2.853 | ||
Tax | 39 | 61 | 61 | 963 | 1.031 | 1.059 | ||
TET | 11% | 17% | 17% | 32% | 34% | 35% | ||
Wealth | ||||||||
Net Base | 2.160 | 2.160 | 2.160 | 18.000 | 18.000 | 18.000 | ||
Tax | – | – | 1 | – | 168 | 216 | ||
TET | 0% | 0% | 0% | 0% | 1% | 1% | ||
Consolidated TET | 11% | 17% | 17% | 32% | 40% | 42% | ||
(Figures in millions of pesos)
3. Increase in the Effective Tax Rate (TET) compared to 2022
· Incomes up to $360 M, it is up to 6 percentage points.
· Incomes from $480 M, it is up to 10 percentage points.
· The increase is due to:
i) Decrease in the maximum limit for deductions and exempt income from $237 to $63 M[1] that are subtracted from the taxable base, with a greater impact on low incomes and a lower impact as income increases due to its marginal effect.
ii) Increase in the nominal rate from 2025:
a. Assets: Over $11,296 M would go from 1.5 to 2%.
b. Income: Incomes over $1.459 M would go from 39% to 41%.
iii) Increase in subjects subject to wealth tax due to reduction of the threshold subject to tax ($1.883 M, previously corresponding to $3.389 M), affecting medium-high ranges.
4. Comparison of highest nominal rent rate in other jurisdictions
European Union[1] | United States[2] | Latin America[3] | Colombia | |
Without project | With reform | |||
42,8% | 42,3% | 30,2% | 39,0% | 41,0% |
The nominal rate would be very close to the average of the countries of the European Union or the United States and well above the average of the region.
[4] Taken from:
https://taxfoundation.org/data/all/eu/top-personal-income-tax-rates-europe-2024/? utm_content=282123396&utm_medium=social&utm_source=linkedin&hss_channel=lcp-47652
[5] Average combined maximum federal and state income tax rate for the 50 US states and the District of Columbia as of January 2024. Taken from: Taxfoundation (see previous note).
[6] Taken from: https://taxsummaries.pwc.com. Colombia is included with the nominal rate of 39%.
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