Businessmen described the Ministry of Finance's self-retention decree as inconvenient.

In a letter to the Ministry of Finance, the National Association of Industrialists (Andi) expressed its concerns about the draft decree that seeks to increase self-withholding tax and advance payments of this tax again during the 2024 fiscal year, arguing that in addition to being inconvenient, it is unjustified and that in the future it could become a bottleneck for economic growth.

In the letter, signed by Bruce MacMaster, president of the association, the business leaders pointed out that if the bill is issued, it could lead to an overestimation of this year's tax revenues, which would deteriorate public finances and negatively impact the productive sector's cash flow in the short term.

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“According to DIAN estimates, the draft decree would raise at least $7.8 billion in advance income tax for the year 2025. However, this increase in withholdings is not technically justified by a modification of tax rules that would increase the final tax amount due, nor by improvements in the profitability of the impacted sectors,” they commented.

They also recalled that something similar had already occurred with Decree 261 of 2023, when self-retention rates were significantly increased, exceeding the productive sector's actual tax-generating capacity. As a result, net tax collections in 2024 declined.

"Companies generated outstanding balances, requested refunds, and paid their obligations with tax refund instruments (TIDIS). In other words, if withholding rates are raised beyond the tax due, the result is nothing other than lower net tax collection in the future; generating larger outstanding balances; and increasing financial costs for companies, as the shortage of working capital will translate into higher corporate debt," the letter states.

They also focused their remarks on the fact that the decree proposes increases of between 4% and 218% in self-retention rates for more than 270 economic activities. Among the affected sectors are manufacturing, agribusiness, construction, transportation, healthcare, education, financial and cultural services, and commerce, among others. For example, for hospitals, insurance companies, and restaurants, the rate would increase from 1.10% to 3.5%, representing an increase of 218%.

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“In the case of the extractive industry, the increases would also be significant. The withholding tax for natural gas extraction would rise from 1.8% to 4.5% (150%), while that for coal would go from 2.2% to 4.5% (105%). For the manufacturing sector, which includes animal feed, textiles, chemicals, and auto parts, the increase would be from 0.55% to 1.20%, equivalent to 118%. The extraction of gold and other minerals would also see substantial adjustments,” they noted.

Andi warned that the bill would also reduce the minimum base for withholding taxes on services from 4 UVTs ($199,196) to 2 UVTs ($99,598), applicable to all sectors. The thresholds for agricultural services and coffee purchases would also be reduced, and the withholding tax on gold purchases would be increased from 1% to 2.5%; this would broadly expand the scope of the measure, particularly affecting small and medium-sized businesses.

In this way, they made it clear that although the government could obtain higher revenues in 2025, a similar measure in 2023 increased the balances in favor of taxpayers, which ended up negatively impacting the flow of resources in subsequent years. In fact, the Dian reported that in 2023, balances in favor of legal entities reached $40.5 billion, compared to $25.6 billion in 2022 and $24.2 billion in 2021, reaffirming that the proposal is fiscally unsustainable. "A further adjustment to these rates would only increase the value of the liability that the DIAN would owe taxpayers for the 2025 fiscal year, impacting net income tax collections in 2026 and subsequent years. It should be noted that many of the sectors potentially impacted by this draft decree declared high credit balances in 2023 and, presumably, in 2024," they stated.

Business leaders questioned the lack of technical justification for the draft decree, pointing out that there is no evidence of any legal or structural change to support the increase in withholding rates for more than 270 economic activities. According to the union, none of these activities have undergone tax changes since Law 2277 of 2022, except for the extractive sector, which even received a reduction in withholdings in 2024.

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According to Andi, the document is based solely on a temporary improvement in the performance of certain sectors such as agriculture, artistic activities, and civil works, without providing clear indicators of increased profitability or structural gaps between withholding and net tax. This, the union warns, does not constitute a sufficient reason to implement permanent and widespread increases in income tax self-withholding rates.

They concluded by warning that in a weak economic context, this measure could have negative effects on growth. This is particularly true considering that the ISE reported negative growth rates of -0.5% and -1.4% in primary and secondary activities during January and February, while the IMF reduced its growth projection for Colombia in 2025 from 3% to 2.4%. For Andi, changing the rules of the game in this environment could exacerbate the loss of economic dynamism.