If tax reform is necessary in Colombia, what should it look like? These are the key adjustments proposed by experts.

Regardless of whether the government's tax reform is approved or not in Congress, there is consensus that an adjustment in public finances is needed, which the Autonomous Committee of the Fiscal Rule (CARF) estimates at 45 trillion pesos, leading observers to believe that more revenue is indeed needed in the face of fiscal deterioration.

Those who see it this way believe that the debate is not limited to when, but rather to how and what characteristics the reform should have to be sustainable, equitable, and politically viable.

Experts agree on three key elements. First, broaden the VAT and personal income tax bases, with compensation schemes for vulnerable households. Second, reduce the burden on businesses to encourage investment; and third, cut and rationalize public spending so that the adjustment does not fall solely on taxpayers.

Regarding the last point, former Finance Minister José Manuel Restrepo points out that reform isn't necessary if the budget were austere and balanced. "What's needed is spending adjustments, not continuing to burden the country with taxes," he emphasized.

Along the same lines, Juan David Ballén, director of Analysis and Strategy at Aval Casa de Bolsa, points out that most reforms have focused on revenue, when what's needed is a genuine reform of public spending.

“The priority should be spending cuts, but a reform should also expand personal taxation, improve the quality of collection, and reduce the corporate income tax rate to attract investment,” says Juana Téllez, chief economist at BBVA Research.

For his part, Jorge Restrepo, a professor at the Pontifical Xavierian University, believes that "the most sensible thing is for this government to focus on cutting spending and let the next government present a structural reform." For him, the problem is eminently political, as he points out that it is very difficult for a government that has already exhausted much of its political capital to pass a tax reform.

Regarding reform, José Ignacio López, president of Anif, believes the diagnosis is clear: revenue must be increased. " What we need is to broaden the bases, either at the product level with VAT, or to expand the base of individual income taxpayers. A combination of both would be advisable."

For Téllez, progress must be made in eliminating VAT exemptions and ensuring that those with the financial means pay them, but at the same time, a compensation system is needed to protect the most vulnerable.

The challenge lies in political viability, López warns, especially because VAT is perceived as regressive. López proposes that any increase in this tax be accompanied by immediate compensation mechanisms for low-income households, even in real time, to neutralize the impact on inequality.

Furthermore, it proposes that reform should be viewed not only as a revenue collection mechanism, but as a tool to boost economic growth, which entails reviewing distortionary taxes such as the industry and commerce tax (ICA) or the tax on financial transactions.

Part of the equation "is not just raising revenue and cutting spending, but ensuring that the reform incentivizes economic growth," López summarizes.

Another point of agreement among experts is the need to expand the taxpayer base for personal income tax, an area where Colombia falls short.

Luis Fernando Mejía, director of Fedesarrollo, points out that tax reform "should focus on expanding the tax bases for VAT and income tax, while protecting those living in extreme poverty. Furthermore, a progressive corporate income tax rate should be considered, because Colombia currently has the fourth highest rate in the world."

Along the same lines, Juan Alberto Londoño, former Deputy Minister of Finance, asserts that a reform should contain three basic elements. First, expand the tax base for individuals; then, the corporate income tax rate could be reduced to encourage investment; and third, establish favorable conditions for Dian debtors to catch up.

Another technical consensus among experts is that there is virtually no room for raising corporate taxes.

According to Andrés Langebaek, director of Economic Studies at Grupo Bolívar, companies already pay very high rates, an average of 35 percent, and in sectors like mining, up to 40 percent.

"This makes us uncompetitive compared to other countries. A reform should reduce this burden to encourage investment, but offset it with other revenue," he adds.

Among the alternatives for this revenue, Langebaek proposes expanding the VAT base for specific items such as biofuel inputs, as well as improving the efficiency of collection and controlling evasion.

According to Carolina Soto, former co-director of the Bank of the Republic, tax reform must include a series of structural reforms that alleviate unsustainable spending and the country's current spiral of spending.

"For example, one is the postponement of the legislative act for the General Participation System law. This increase, this duplication of transfers to the regions that was ordered last year, will have to take more time and its start will have to be postponed. There are a number of measures that must be postponed and that we consider imminent. We need to review how we can alleviate these tensions somewhat, while also making progress on coverage and guaranteeing these rights," he said.

Soto also calls for a plan to boost economic growth in the productive sector and a review of regulations.

"It's not that the State isn't fulfilling its regulatory and oversight role, but it's possible that all these regulations could be streamlined to foster economic growth. Tax reform must also be aligned with the productive apparatus's capabilities to generate more revenue and, above all, to ensure sustainable economic growth," he commented.

According to the former co-director, more economic growth is needed to achieve all social goals and achieve sustained growth of 4 percent or more. To achieve this, a reform must include four elements: spending rationalization, regulatory rationalization, structural reforms, and a boost to economic growth.