Colombia
The country profile includes data on the income taxes paid by workers, their social security contributions, the family benefits they receive in the form of cash transfers as well as the social security contributions and payroll taxes paid by the employers. Results reported include the average and marginal tax burdens for eight different family types.
It also describes the personal income tax systems, all compulsory social security contribution schemes and universal cash transfers as well as recent changes in the tax/benefit system.
The national currency is the Colombian Peso (COP). In 2013, the average exchange rate for the year was COP 1 869.10 to USD 1. In that year, the average worker earned COP 13 954 218. There is a Unit of Tax Value (Unidad de Valor Tributario – UVT) which varies over time. The 2012 UVT is applicable to the estimation of the tax liability on income earned in 2013. In that year, the UVT was COP 26 841.
The Report includes estimates of the tax wedge over the whole of the income distribution ordered by deciles of total labour income of formal wage earners derived from the household surveys
1. Personal income tax system
The fiscal year is the calendar year.
1.1. Central government income tax
Colombian tax legislation provides for two alternative systems in addition to the basic model for determining the personal income tax liability. Under the basic model, individual taxpayers are mandated to self-assess their income tax on labour earnings, capital gains on sales of property, occasional profits, as well as profits from companies and foreign entities. The first alternative is the Minimum Alternative Simple Tax (Impuesto Mínimo Alternativo Simple – IMAS) which is an optional system aimed at low wage-earning individuals. The second is the National Minimum Alternative Tax (Impuesto Mínimo Alternativo Nacional – IMAN). This is a presumptive and mandatory system for the determination of the tax base and income tax rate on income and complementary income.
The alternative systems have different allowances and exemptions compared with the ordinary income and complementary tax system.
The determination of the income tax liability takes several steps. An individual must first self-assess the tax liabilities using the IMAN and the basic income tax system and choose the higher of the resulting tax liabilities. If the taxpayer is entitled to use the optional IMAS system, then he/she may elect to pay the lower of the IMAS tax liability and the higher of the IMAN and the basic system.
Exempt income under the basic income tax:
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Work injury or sickness compensation.
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Compensations paid due to maternity leave.
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Funeral expenses
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Old age, disability and work injury compensation that exceed 1 000 UVTs per month.
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Other exemptions applying to public servants such as police officers and members of the military.
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Interest paid on deposits held by financial institutions subject to the financial institutions’ legal scheme.
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Severance payments or payments made due to accidents or illness, regardless of whether the payments are made under civil laws, social security or insurance contracts.
1.1.1. Tax unit
Each family member declares and pays taxes separately.
1.1.2. Tax allowances and tax credits
1.1.2.1. Standard tax allowances and tax credits applying to the basic income tax model
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25% of wages up to 240 UVTs per month.
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Compulsory employee social security contributions (also applicable to the alternative tax systems – IMAS and IMAN).
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10% of dependents’ gross earnings, regardless of the number of dependents, up to 32 UVTs per month. In the case of married couples, this deduction has been applied to the principal earner in the modelling.
1.1.2.2. Main non-standard tax allowances and tax credits
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Voluntary and mandatory contributions to pension plans limited to either 30% of the annual employment income or 3 800 UVTs in 2013, whichever is lowest.
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Mortgage interest payments made by an employee up to 16 UVTs per month.
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Dividends and interest.
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Health insurance premiums paid in respect of the taxpayer, the spouse and any dependents.
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Charitable donations.
1.1.3. Tax schedule
The annual income tax liabilities were calculated on the taxable income according to the following alternative schedules in 2013:
1.2. State and local taxes
No state or local taxes are levied on wages.
2. Compulsory social security contribution to schemes operated within the government sector
2.1. Employee contributions
Employee social security contributions are levied on gross earnings. Income in respect of vacations and other monetary bonuses received by workers are exempt.
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There is a rate of 4% for the old age, disability and survivors programs. The lower earnings threshold is the minimum wage (the annual minimum wage was COP 7 704 000 in 2013). The upper ceiling is 25 times the minimum wage (COP 176 850 000 per year in 2013).
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The contribution rate and earnings thresholds for the healthcare contributions are the same as for the old age program.
In addition, contributions to the Solidarity Fund for Pensions are levied on taxable income above 4 times the minimum wage according to the following monthly schedule:
2.2. Employer contributions
The employer social security contributions are levied on the payroll. The lower earnings thresholds and the upper ceilings constitute various multiples of the minimum wage (COP 7 074 000 in 2013).
3. Universal cash transfer
3.1. Amount for spouse and for dependent children
The “Family Subsidy” is paid on a monthly basis, in respect of all dependents in the household, to a single earner working 96 hours or more per month with a monthly wage not exceeding COP 2 358 000 (4 times the minimum wages). For employed couples, the requirement to receive this subsidy is that the sum of their gross wages does not exceed COP 3 537 000 (6 times the minimum wage).
Eligible individuals, economically dependent on the worker, include children, stepchildren, orphans, and parents aged over 60.
The amount of the monthly transfer which is constant throughout the year varies between geographical regions. The annual average allowance in 2013 was COP 280 666 per dependent.
4. Main changes in tax/benefit since 2013
The amount of the UVT is adjusted each year impacting on each of the three personal income tax schedules. The UVT for 2016 is 29 753.
5. Memorandum items
5.1. Identification of an AW
The source of information is the Integrated Household Survey conducted by the National Administrative Department of Statistics (DANE). The average gross earnings are obtained by multiplying the average hourly wage by the average number of hours worked, according to the quarterly reports and expressed on a monthly basis. The figures cover full time workers (taking into account people working 40 hours or more per week in their main jobs). The data on the income deciles distribution refers to the earnings of workers within the formal sector.