Colombian lawmakers approve controversial tax reform

BOGOTA Wed Dec 19, 2012 10:47pm EST

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BOGOTA (Reuters) - Colombia's Congress gave the green light on Wednesday to a controversial bill that aims to streamline the country's complicated tax system but at the cost of reducing government tax receipts going forward.

Adjustments to President Juan Manuel Santos' tax proposal were seen as a bitter pill for his administration, which had wanted a reform that was revenue neutral for Latin America's fourth-largest economy.

To get the tax reforms passed, Santos' government was forced to call extra sessions of Congress and the president interrupted regular television programming twice in the last month to explain the reform to Colombians.

Finance Minister Mauricio Cardenas said that modifications to the original government bill would cut annual tax collections by about $280 million.

Despite the changes introduced by lawmakers, the government welcomed the bill's passage.

"This reform will allow us to stop being one of the most unequal countries on this continent ... it's a reform that will allow Colombia to move formal employment generation forward," Cardenas said after the reform was approved.

"There'll be a reduction (of tax receipts), that is the cost of the reform, but we believe that it's a cost that's worth incurring because there are big benefits."

Much of the specifics of how the new law will turn out are still up in the air since the Senate and House must now reconcile their texts before it goes to Santos to sign into law.

Santos' government said the original bill's purpose was not to change the amount of revenue the state takes in, but to simplify taxes.

Critics said that the reform did not go far enough and that large corporations should pay more taxes to help fund social spending and reduce inequality in the Andean country.

"The more I think about it, the more sure I am that Santos is imposing the worst tax reform in the history of Colombia. None had dared to something as plutocratic," leftist Senator Jorge Robledo said in a message on Twitter.

The bill is part of a range reforms pushed through Congress since Santos came to power in 2010, including a fiscal rule to make it a constitutional requirement for a balanced budget and a change to the way oil and mining revenues are distributed.

Colombia is attracting record investment inflows, its economy is expanding strongly and tax receipts are at historic highs thanks to a U.S.-backed military offensive against leftist guerrillas and drug gangs.

But it remains one of the countries in the region with the greatest social and economic inequalities.

(Reporting by Carlos Vargas, Nelson Bocanegra and Jack Kimball; Editing by Lisa Shumaker)

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