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FLASH | COLOMBIA Please refer to important information and 31 October 2018 MAR disclosures at the end of this report ECONOMICS | EMERGING MARKETS Colombia’s tax reform: Short-term pains, long-term gains KEY MESSAGES Impact on medium-term growth should be positive, in The Finance Ministry released the draft of a tax reform bill our view. Similar to the tax reform of 2016, which raised that is expected to reduce the burden on companies, while the VAT by 3pp, the elimination of most exemptions could eliminating exemptions on various goods and services. temporarily dent confidence, hurting consumption in Q1 While confidence could take a toll during the early stages 2019. However, given the 3pp and 2pp cuts planned for the of implementation of the tax reform bill, net balance for standard corporate and value-added tax rates, respectively, growth should be positive. plus a tax break for capital goods, we see net gains. Inflationary risks are likely to be mitigated in the final The government also announced the creation of a version, to make basic staples as tax exempt. stabilisation fund from oil revenues. This is expected to We view the draft as a positive step towards lessening reduce capital expenditures by the central government, d