Tax collection remains under pressure from refunds and low growth

Tax collection in Colombia is facing increasing pressure mid-year, as warned by a recent analysis by Banco de Bogotá's Economic Research Department. According to this analysis, gross tax collection for the year to date through May was $127 billion, a figure that represents a $6.3 trillion shortfall compared to the target stipulated in the Government's Financial Plan (PF).

For the financial institution's technical team, the real gap would be closer to $10 trillion, and the projection for all of 2025 anticipates a gap of at least $27 trillion in tax revenues, which would need to be cut to prevent the cash flow crisis the government has been facing for months from worsening.

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One of the main factors behind this gap is the unusually high performance of tax refunds issued by the Dian, since between January and April, these refunds, together with the collection associated with the Tax Refund Titles (TIDIS), reached $9.8 trillion, a figure that far exceeds the historical range observed between 2010 and 2024, which ranged between $0.5 and $5 trillion (adjusted to 2025 prices).

In this regard, analysts assert that this pressure on fiscal accounts has directly affected net revenue, which is obtained by excluding refunds and TIDIS, given that although gross revenue for that period met the Confis target ($94.6 billion), net revenue presented a shortfall of $3.9 billion for them; taking into account recent changes in the tax calendar, it could actually be $8 billion.

On the other hand, they pointed out that the high volume of refunds in 2025 could be related to a fiscal strategy implemented in 2024 to contain the deficit, since according to the entity's hypothesis, the Government had postponed tax refunds last year to prevent the fiscal deficit from exceeding the -6.7% of GDP observed, which would be generating an adverse effect this year, since the accumulated refunds are finally being executed, reducing liquidity for the treasury and deteriorating budget execution.

Adding to this scenario is the official acknowledgment that the tax targets defined in the Financial Plan were overly optimistic, especially by Finance Minister Germán Ávila, who recently stated in Congress that the projected revenue growth for 2025 will no longer be 21% as previously anticipated, but will instead be reduced to 14%, representing a $20 trillion adjustment.

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“While the figure is more realistic, the assumption is still far from reality. For IE, the downward adjustment should be around $27 trillion. Of this, $26 billion would account for the issue of refunds and economic activity that has not responded at the pace expected by the nation, and $1 billion would be due to the ambitious tax collection goal of the internal turmoil,” they stated.

This adjustment is primarily explained by two factors, starting with the aforementioned impact of refunds and a weaker-than-anticipated economic performance. In particular, the performance of the most representative taxes in the system, income tax and VAT, has been modest. In the first quarter of the year, income tax revenue fell 2.1%, while VAT grew by just 7.3%.

" In contrast, revenue growth has come from low-participation areas such as external taxes, which account for 17%, and other segments with a lower incidence of less than 5%," they added in the report.

In this regard, they asked to keep in mind that the economic sectors that contribute the most to legal income—mining, industry, commerce, and financial services—have not shown sufficient recovery to bolster revenue collection, given that while the Colombian economy grew 1.6% in 2024, mining contracted 5%, industry 2%, and the commerce and financial sectors grew just 1.4% and 0.4%, respectively.

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For 2025, they maintain that the economy shows growth of 2.7%, but mining continues to decline (-5%) and industry is growing by barely 1.3%. Additionally, the structure of household spending has also influenced the weak performance of VAT.

"Consumption has been concentrated in informal sectors such as recreation, where revenue is harder to capture. This trend contributes to the dilution of revenue growth in segments with low tax efficiency," they indicated.

Another factor worsening the outlook is the revenue target attributed to taxes stemming from the domestic crisis, initially set at $3 trillion, which experts predict will not be met, suggesting it will be closer to $2 trillion, which would imply an additional gap of $1 trillion. "All of this is occurring in a context in which the government has shown a clear reluctance to cut public spending, while the imbalance between revenue and expenditure points to a high fiscal deficit in 2025, which had already been anticipated last year. Today, the deviation from that estimate amounts to $43.6 trillion," the report says.

With the next update of the Medium-Term Fiscal Framework scheduled for June 13, the Ministry of Finance is expected to review its tax revenue assumptions again, and for Economic Research, the transparency of these figures is urgently needed if the country's fiscal credibility is to be restored and budget decisions oriented toward the true margins available.