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EXCLUSIVE-Colombia to seek more than $7 bln via proposed tax reform

(Adds details on VAT, other proposed changes)

BOGOTA, March 23 (Reuters) - Colombia will seek to raise 25.4 trillion pesos ($7.15 billion) in a proposed tax reform to be sent to congress in the coming days, more than previously stated, according to sources and documents seen by Reuters on Tuesday.

The finance ministry had said the reform - considered key for the Andean country to maintain its investment-grade credit ratings and recover from the economic fallout of the coronavirus pandemic - would raise 1.5% of GDP, or about 15 trillion pesos.

But a chart shared with Reuters by a source with knowledge of the matter and confirmed by two others who attended meetings with the finance ministry on Tuesday shows the government hopes to collect significantly more money - equivalent to 2.2% of GDP.

Under the proposal, some 10.5 trillion pesos would be collected via value added tax, with other funding coming from taxes on individuals and businesses.

A finance ministry press officer confirmed it held meetings on Tuesday with business groups and political parties but said it had no knowledge of the proposal’s details.

Of the money raised by the reform, some 16 trillion will go toward spending needs, while 7.6 trillion will fund welfare payments. Other funding will be directed at economic reactivation efforts.

No additional foodstuffs will be subject to VAT, according to the finance ministry’s presentation seen by Reuters, but VAT exemptions on other unspecified products will be cut.

Books, internet for poorer areas and other items are currently exempt from the value-added-tax.

VAT would account for 46% of tax collection under the changes, up from its current 39%.

The reform would also expand the tax base, make a wealth tax permanent and increase duties on dividends from 10% to 15%, the document said.

Businesses would see a cut in income taxes, but many deductions would be eliminated from 2023.

Fiscal deficit limits will require changes to meet targets set for 2022 through 2024 the document added. The limit is currently suspended and the government predicts the deficit will reach 8.6% of GDP this year.

The changes broadly match economists’ recommendations that Colombia reduce exemptions and expand its base, among others.

Experts say exemptions and other benefits cost the country about 6.5% of GDP, equivalent to $19.4 billion.

Colombia drastically increased spending and raised its debt to the equivalent of 64.8% of GDP to address coronavirus-related needs, even as the economy shrank 6.8% in 2020.

$1 = 3,553.34 pesos Reporting by Carlos Vargas and Nelson Bocanegra; Writing by Julia Symmes Cobb; Editing by Sonya Hepinstall and Dan Grebler