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When Colombia’s new president, Gustavo Petro, took office in August, it was as if a new era was beginning for the country’s tourism industry. On the contrary, Petro’s team and crusade had made sustainability and inclusion one of their trademarks, and the sector had a critical role to play.
However, the most pressing detail of Petro’s plan to repair the country’s finances, to address the developing upheavals of inequality and poverty. Then, about a day into his presidency, he introduced tax reform with the purpose of expanding tax revenues to $11 billion through 2026, the final year of his term.
Among the proposed measures, a massive red flag was the elimination of the 19% value-added tax exemption on air tickets and packages. In addition, the structure and renovation of hotels and rooms benefited from a differential tax rate of 9% below the average rate that was to be eliminated.
In the last two months, legislators, chambers of commerce and other bodies have been able to recommend changes, adding several so that the reform does not hinder the country’s tourism boom: projections for 2022 imply that the issuer will recover between 105 and 110% in Colombia – a vital source market for the United States – compared to 2019, which was a record year of 4. 5 million passengers. And domestic flights would see an increase in demand of between 120 and 125 percent during that period.
The Association of Travel Agencies (ANATO) estimated that tourism foreign exchange accounted for $3. 2 billion in profits in the first part of the year, up 1% from the same era in 2019. And sales through tourism agencies also increased by 87% in the first quarter. “We are no longer talking about a recovery, this is genuine growth,” said ANATO Executive President Paula Cortés Calle.
The revised reform was debated in congressional committees this week, but the sector’s demands appear to have fallen on deaf ears. With most of the articles given the green light, Finance Minister Jose Antonio Ocampo expects them to be put to a vote until the end of October. .
News for tourism projects
The revised reform lowered the tax collection target to 1. 5 percent of Colombia’s gross domestic product by 2023, or about 21. 5 billion pesos or $4. 7 billion, and 24 billion pesos or $5. 2 billion by 2026. This has prevented the tourism sector from wasting its reduction rates: Only ecotourism, rural tourism and new hotel projects, in communities of less than 200,000 inhabitants, will pay a differential rate of 15% on gross income.
Cotelco, Colombia’s Hotel and Tourism Association, estimates that, on average, the tax rate is 53% on hotel gross profits, ranging from 42% for homes eligible for the differential rate to 76% for non-subsidiary-eligible homes. In 2021, about 14% qualified for this special treatment, for 46,000 new rooms and 26,000 room renovations.
“The new regulations are not transparent about what will happen with ongoing projects. Some have made investments in land and materials, others are halfway through construction, all with existing legislation. We would like to upload a list so that those who are already qualified for those benefits will retain them,” Cotelco resources said.
At a press conference Friday at Skift’s request, Finance Minister Antonio Ocampo said he hoped that those who were already qualified will maintain their differential rate, but not new projects that do not meet the criteria discussed through the reform.
He added that municipalities classified as PDET (progression program for territories largely affected by violence and poverty) that are interested in undertaking ecotourism projects, such as Buenaventura, will also benefit from the 15% differential tax. He added that “this is the minimum rate agreed through the Organization for Economic Cooperation and Development, OECD. “
Slower fears
None of the many advice given to the reform to increase the 5% value-added tax for tourist purchases was included in the final text and the benefit is expected by December 31 of this year, when the rate will return to 19%.
Cotelco’s resources told Skift they think it will last for another two years: “Despite the uptick in guest numbers, hotels still run a currency deficit and, in some cases, are heavily indebted. They want time to regain their balance while keeping their jobs going.
Cortés Calle believes that the new edition of the reform discourages investment and the sale of national tourism products, making some foreign destinations cheaper for Colombians, just before the summer season.
He said that “tax benefits are key to revitalizing the market and a starting point for agencies and entrepreneurs. Without them, we will hardly achieve the same behavior that the industry exhibited before the pandemic.
Tags: colombia, tourism
Photo credit: Tourist attractions such as downtown Medellín and Plaza Botero may feel the impact of proposed new tax reforms. Museum of Antioquia / VisualHunt
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