Colombia’s Duque withdraws tax reform bill after violent protests

Colombia’s president Iván Duque asked congress on Sunday to withdraw his much-criticised tax reform bill after five days of sometimes violent street protests in which at least six people have been killed.

The embattled president said his government would present an alternative draft law soon “that is the fruit of consensus”. He insisted that some sort of tax reform was necessary to stabilise Colombia’s finances and help cover the loss of revenue and the sharp increase in social spending prompted by the coronavirus pandemic.

“The reform is not a whim. The reform is a necessity,” he said in a video address in which he was flanked by nearly a dozen members of his cabinet.

The notable absentee in the video was finance minister Alberto Carrasquilla, the architect of the reform. That fuelled speculation on social media that he was about to either resign or be dismissed. Some commentators and a few opposition politicians said the protests would continue until Carrasquilla left office.

Duque confirmed some of the content of the original bill would be scrapped, including a plan to increase value added tax on goods and services. He has also had to back down on a plan to increase VAT on fuel.

Instead, Duque suggested the new text would levy increased taxes on companies.

The reform is the most important piece of legislation in Colombia this year. The country’s investment-grade status depends on it.

Both Fitch and Standard & Poor’s rate Colombia BBB- with a negative outlook for the issuance of long-term debt. That is just one notch above non-investment or junk status. Moody’s rates Colombia Baa2, two notches above junk.

If the reform fails or is diluted, there is a high chance Colombia will be downgraded — demoted from a small group of Latin American investment-grade nations that includes Mexico, Chile and Peru.

That would be a blow to a country that, despite its long civil conflict and well-chronicled lawlessness, prides itself on fiscal rectitude. In sharp contrast to most Latin American nations, Colombia has not defaulted on its debt since the 1930s and has enjoyed investment-grade status since 2011.

The protests against the reform began on Wednesday with a nationwide strike that drew more people than expected. The protests have continued since then and turned violent, notably in Colombia’s third city Cali, where shops were looted and buses were set on fire.

Human Rights Watch, a US-based NGO, said it had confirmed six deaths related to the protests, four of them in Cali. A police officer was killed in Soacha, a gritty satellite town on the edge of Bogotá. Local NGOs put the national death toll as high as 20.

The government was initially aiming for a reform worth 1.4 per cent of GDP, or $4.1bn, by eliminating some tax exemptions and broadening the tax base, among other measures.

Despite backing down, Duque’s rightwing Democratic Center party has fewer than 20 per cent of the seats in congress and might struggle to get the new draft law through congress.