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September 21, 2022
2022-1415

Colombia introduces environmental taxes in Tax Reform Bill

  • Colombia’s recent Tax Reform Bill (the Bill) contains several measures related to environmental taxes.
  • Proposed measures include taxes on single-use plastics, exports of oil and coal, and the inclusion of coal in carbon pricing measures.
  • As the Bill is still subject to debate, there may be changes to the proposals when the law is enacted.

On 8 August 2022, the Colombian National Government presented Bill No. 118 of 2022 called “Tax Reform for Equality and Social Justice.” This is the first draft presented to Congress and therefore it will be subject to debate and is likely to change before the final Law is approved. Among the measures proposed in the Bill, the following relate to environmental taxes:

National Tax on single-use plastics

It is proposed to create a national tax on single-use plastic products used to wrap, pack or package goods, except those used to wrap, pack or package medicines, and hazardous waste. This tax would be levied on the sale, withdrawal for own consumption and importation for own consumption of the goods in question.

The taxpayer would be the producer or importer, and the proposed rate is 0.00005 UVT (Tax Value Unit) for each (1) gram of the container, packaging or packing, i.e., approximately 1.9 pesos per gram or 0.00043 US$ per gram.

The tax would not be levied when the taxpayer has a Circular Economy Certification – CEC. This Certification will be regulated by the Ministry of Environment and Sustainable Development.

There will be no option to use this tax as an income tax deduction. In addition, a penalty is proposed for not declaring this tax, equivalent to 20% of the value of the tax that should have been paid.

Tax on exports of crude oil and coal

The Bill proposes the creation of a tax on exports of crude oil and coal. The taxable base tax would be a percentage of the free on board (FOB) value of exports of crude oil and coal. This percentage is obtained by subtracting the observed international price (which would be updated monthly by the Ministry of Mines) minus the threshold defined in the regulation and dividing the result by the observed international price.

In summary, the value of the tax is the result of multiplying the FOB value of the exports, by the percentage to be taxed (obtained by the formula explained above), by the rate (10%). The purpose of this rule is to tax exports of these products only in times of high prices. Therefore, in any month in which the international price is equal to or lower than the threshold determined in the regulation, the tax will not be generated.

The thresholds determined in this draft reform are:

  • For coal exports, the threshold price is US$87. The international price would correspond to the observed monthly average of the price of coal, per metric ton, Newcastle reference.
  • For oil exports, the threshold price is US$48. The international price would correspond to the observed monthly average of the price of a barrel of WTI reference oil.

It is important to consider that in the text filed it was contemplated that this same tax would apply to gold exports. However, the Ministry of Finance has recently communicated that gold will be excluded from this tax, among other reasons, to protect small gold producers.

National carbon tax

The aim of the reform is to include coal within the national carbon tax that was created by the Tax Reform of 2016. It should be recalled that within such law, the only events that were included in this tax were the withdrawal and importation of gas and oil derivatives, but coal had not been expressly included. However, this tax will only apply for finished coal and not for coking coal.

The rate for each unit of fuel depends on the emission of greenhouse gases of each type of fuel and its volume or weight. However, the rate for each type of fuel is calculated to obtain a total rate of COP$20.500 (US$4.65 approx.) per ton of carbon equivalent (CO2eq). The rates would be adjusted each year according to the consumer price index of the previous year plus one point, until the total rate is equivalent to 3 UVT (Tax Value Unit), which would be approximately US$25.31 per ton of carbon equivalent if using the UVT value for 2022.

In the case of coal, the rate would be applied gradually. In 2023 and 2024, no tax would apply on coal. In 2025, 25% of the rate would apply. In 2026, 50% of the rate would apply. In 2027,75% of the rate would apply. And the full rate for coal would apply from 2028. This measure was adopted to avoid undesired effects on the electric power generation and distribution sector at the national level.

It is important to remember that this tax does not apply to taxpayers who certify that they are carbon neutral, in accordance with the regulations issued by the Ministry of Environment and Sustainable Development.

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CONTACTS

For additional information with respect to this Alert, please contact the following:

Ernst & Young S.A.S. Bogota, Indirect Taxes, Customs and International Trade

 

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