September 10, 2014 / 11:11 PM / 5 years ago

UPDATE 1-Colombia scraps increase to 2015 budget, softens wealth tax rules

(Adds scrapping of plan to lower threshold on wealth tax)

BOGOTA, Sept 10 (Reuters) - Colombia’s government has backed away from plans to increase its 2015 budget and to lower the threshold for the payment of wealth tax, Finance Minister Mauricio Cardenas confirmed on Wednesday, amid criticism by industry and opposition figures.

Addressing the congressional economic commission, Cardenas said next year’s total budget would be 216.2 trillion pesos ($109.5 billion) as previously planned after officials said on Tuesday the government wanted to raise it by up to 2 percent.

That could have required a 1 percentage point increase in sales tax, known locally as IVA, a senior government official told Reuters.

“For the total amount, there is no room for maneuver. We don’t see additional sources (of funds) to increase it,” he said.

Later on Thursday, Cardenas told reporters that plans announced this week to lower the threshold above which a tax on wealth is payable, to 750 million pesos, had been scrapped at the request of President Juan Manuel Santos.

The tax will continue to be paid on total wealth of 1 billion pesos or more while the top-tier rate payable on assets of 8 billion pesos or more, would increase to 2.25 percent from 1.5 percent.

Finances have become a concern for the government after a slip this year in the output of crude oil, the country’s top export, which has cut revenues earned through taxes and royalties. The economy is forecast officially to grow around 4.7 percent nonetheless, helped by a surge in the first quarter.

The plan to raise taxes drew heavy criticism on Wednesday by prominent industry figures who said it threatened investment and employment.

Cardenas said Santos would next week announce an “austerity” plan, but did not elaborate. He is likely to have been referring to an effort to seek greater efficiency in the cost of running the government since there is no plan to cut the overall budget.

“The government commits to freezing the (public) payroll, reducing general expenditures and seeking all the savings possible in its entities,” he told the congressional commission.

He had also referred earlier in the day to a hiring freeze by the government as one possible cost-limiting measure.

$1 = 1974.9 Colombian Pesos Reporting by Carlos Vargas; Writing by Peter Murphy; Editing by Chizu Nomiyama and Diane Craft

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