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Colombia must grow income -Fitch

BOGOTA, April 22 (Reuters) - Colombia must boost its income, whether via a proposed new tax law or by improving collection of current taxes, Richard Francis, Fitch’s senior director of sovereign ratings for Latin America, said on Thursday.

The government has proposed a controversial tax reform to congress which it hopes will raise an extra 23.4 trillion pesos ($6.43 billion), equivalent to 2% of gross domestic product (GDP).

The proposal is facing criticism from unions, business associations and political parties in congress, which has until the end of June to potentially pass the law.

Credit rating agencies such as Fitch have said they will wait to see if the reform passes before making a decision on possibly modifying the country’s investment grade rating.

Colombia must tackle its fiscal deficit, which could hit 9% of GDP this year, Francis said. A 9% figure would be the world’s highest, he added.

“Which type of reform doesn’t matter, just that income grows to lower the fiscal deficit and to start to stabilize debt in terms of GDP,” Francis said at a panel organized by local newspaper La Republica.

For debt to stabilize the fiscal deficit must shrink from current levels to at least 3% of GDP, Francis said, whether by increasing income or improving tax collection.

Colombia’s tax and customs office DIAN has improved processes to tackle tax evasion and avoidance, which helped it collect an additional 20.85 trillion pesos ($5.73 billion) of tax last year, it said.

The government expects Colombia’s debt to fall gradually from the current 64.8% of GDP to 59.2% of GDP in 2031.

“We are concerned about Colombia’s faster than average growth of debt in terms of GDP ... which for us makes it important that the government obtains a fiscal adjustment,” he said.

$1 = 3,639.12 pesos Reporting by Nelson Bocanegra; Writing by Oliver Griffin; Editing by Daniel Wallis