Colombia's VAT Plan Puts Consumers on the Hook

The government of Abelardo de la Espriella proposes raising VAT from 5% to 19% on products including fruit, vegetables and coffee, while seeking congressional approval for a fiscal bill before the end of 2026. The tax increase would bring more revenue into state accounts; Alvaro Uribe warned that consumers, especially middle- and lower-income people, would bear its impact.

"There is considerable concern about VAT because of its impact on our middle- and lower-income compatriots," Uribe said. The former Colombian President leads the Democratic Center party, which belongs to the governing coalition and holds influence over economic committees and congressional votes. Its backing is considered important to securing a majority for the bill.

Consumers Face the Tax Increase

The government says the Fiscal Rescue Bill aims to reduce the imbalance in public finances and curb state spending. The Finance Ministry proposes raising VAT on certain products to increase revenue and help close the fiscal gap. The burden in the proposal falls on consumers buying everyday products such as fruit, vegetables and coffee.

Colombia faces high debt, a fiscal deficit and difficulty financing the national budget. The government maintains that higher revenue and lower spending are both needed to stabilize public finances. The bill is one of De la Espriella's main economic policy priorities, and its measures are intended to take effect in 2027.

Local and regional elections are scheduled in Colombia in 2027. Political parties are wary of measures likely to be unpopular, leaving tax and spending decisions entangled with the electoral contest even as the government seeks approval from Congress.

Who Decides What Gets Cut

During the election campaign, De la Espriella argued that the fiscal imbalance needed attention but promised the adjustment wouldn't rely solely on new taxes. Reducing the size of the state and rationalizing public spending stood at the center of his economic platform. He pledged to cut the size of the state apparatus by 40%.

The bill would reorganize government institutions, eliminate or merge agencies and reduce public spending. Uribe says the proposed cuts don't meet the campaign commitment. After meeting with economic experts, he said: "There was a consensus that the savings proposed by the government are far too small. They must be increased by eliminating agencies with overlapping responsibilities and merging others."

Uribe has acknowledged the severity of the fiscal situation and the need for action, but he hasn't committed his party's congressional bloc to unconditional support. Democratic Center leaders are seeking a common position and preparing amendments that would eliminate overlapping agencies, merge departments and cut operating expenses. Uribe said the party hadn't ruled out an alternative proposal if it concluded the bill didn't meet the country's needs.

A Saturday meeting was scheduled between Vice President Jose Manuel Restrepo, who is leading the government's economic negotiations, and a Democratic Center delegation. The meeting was expected to move negotiations toward consensus and narrow differences over taxes and spending cuts.

In a November 5 post, Centro Democrático said it was evaluating the Ley de Rescate Económico with experts and analyzing alternatives for the fiscal deficit and the country's economic situation. Its post called for "un Estado austero y una economía fraterna, con más inversión privada." The party's words set out the terms of the debate: higher taxes on selected goods, cuts and restructuring in government, and a congressional majority still to be assembled.