The international Monetary Fund (IMF) has issued a report following a visit by staff to Colombia for discussions under Article IV of the IMF’s articles of agreement. The recent decline in oil prices is a challenge that is affecting Colombia’s economic outlook in the short term but medium term prospects are improving and a structural reform agenda will improve competitiveness. Strong economic growth in recent years has been accompanied by a rise in private investment and strong inflows of foreign direct investment.

The IMF considers that revenue mobilization is necessary to protect government spending on the infrastructure and social goals. The report notes that Colombia has put together an independent expert commission to advise on measures that will improve the efficiency of the tax system. According to the IMF Colombia should mobilize tax revenue in a way that results in a simplification of the tax structure. Colombia should broaden the tax base and make the tax system more progressive. The tax system also needs to facilitate private investment and make sure that Colombia is competitive on the international stage.

According to the IMF report the options that Colombia should consider include replacing the corporate tax system with the simplified exemption structure of the CREE. The CREE or fairness tax is currently an additional income tax charged on resident companies and on permanent establishments of foreign companies.

Colombia could also consider substituting the traditional personal income tax by an extended IMAN. The IMAN is a minimum tax in the form of a progressive flat tax on income. The IMF also considers that the rate of value added tax (VAT) could be increased.

If the modifications to existing taxes could raise sufficient tax revenue it may be possible to reduce other taxes such as the personal wealth tax, financial transactions tax and the VAT charged on capital goods with the objective of increasing economic growth.

Revenue gains could also be obtained from improving the tax administration. Colombia could increase the penalties for evasion and recruit more people for the tax administration to ensure that the appropriate amount of tax is collected. Tax collection could also be increased by improving the information technology used by the tax administration.