Colombia ranks fourth in the world for having the highest tax rates for businesses, according to the World Economic Forum’s Global Competitiveness Report.
On average, 75.4% of a business’ profits go towards taxes, according to the report.
This exceptionally high number places Colombia right at the bottom of competitiveness for this category: #137 out of the 140 countries measured in the report. While it’s fourth in the world, Colombia managed to rank only third in Latin America for highest tax rates, behind Argentina (#1) and Bolivia (#2).
To calculate the average percentage in each country, the WEF added the different types of taxes and contributions payable after accounting for deductions and exemptions.
The calculation includes labor taxes that fall on the employer, but not those like income tax, which fall on the employee.
Consequently, the most problematic factor for doing business in Colombia is the South American country’s tax system, followed closely by corruption. The high tax rates reduce incentives to invest in Colombian businesses, and especially cause injury to smaller businesses, which have a narrower profit margin.
The lofty ranking and the evident obstacles it presents have been largely caused by the new wealth tax implemented by President Juan Manuel Santos at the end of 2014, according to the WEF.
The polemic wealth tax sought to increase revenue for the government in order to close the 2015 budget, which fell short largely due to falling oil prices and a sharp decline in revenue from Colombia’s top export, crude oil. The decline in oil has also led to the weakening of the peso, which has dug deeper into the country’s deficit.
