Upcoming tax bill and taxation of unproductive land
During the past weekend, both the future agriculture and finance ministers of the upcoming
Government that will start as of August 7th. 2022 in Colombia, referred to the imposition of
taxes on unproductive land.
The future Minister of Agriculture, Cecilia Lopez gave an interview in El Tiempo newspaper,
and established:
- Qualification of unproductive property
Specific indexes will apply to qualify any terrain as unproductive, which will be
based on a series of variables determining how much to expect from a particular
terrain in terms of production.
Areas where there is a conflict of use, (i.e., areas that can be destined to
agriculture or to reforestation and are not) will be determined. Ms. Lopez
mentioned that terrains destined to cattle breeding in Colombia occupy much
more extension than they should. To date, she said, big areas of fertile land for
the production of food, are destined to extensive cattle breeding. - Multipurpose land registry
A multi- purpose land registry will be elaborated by official experts reflecting the
productive capacity of the land. - Taxation of unproductive property
A tax would apply on deemed earnings that the terrain should be producing if it
was properly exploited. ( it is not clear whether the unproductive tax would apply
on the value of the estimated income or on the appreciation of value deriving
from the estimated earnings). - Active subject
The municipalities would be the competent authorities to implement the tax.
(Municipality Councils would be determined the rates and the taxable basis
within specific ranges established by Law). - Insolvency of unproductive landowners
Insolvent landowners required to pay taxes on unproductive land, will have to
choose between partnering with someone else or selling the land to the
Government. The Government in turn, will distribute the purchased land to
owners of small lots so that the latter may hold a minimum basic area that allows
them to be productive. - Legal proceeding to enact the tax on unproductive property
The new Government will not file a bill before Congress to formalize the Agrarian
Reform. Ms. Lopez argued that sufficient legal instruments exist in Colombia to
proceed.
On the other hand, the upcoming Finance Minister, Mr. Jose Antonio Ocampo, gave an
interview to Revista Semana, confirming that regulations on taxes on unproductive land and
expropriations, will be dealt with in the upcoming tax bill to be filed before Congress.
- The questions rising from the above-mentioned comments seek preliminarily to conciliate
the implementation of the new tax and the following constitutional principles on taxation:
The Principle of Unity of Law, established in section 158 of the Colombian Constitution
requiring that any draft bill refers to the same matter and determines that dispositions
that do not relate to the main subject, are not admissible.
How will the expropriation of land be included in the new Tax Bill?
- The Principle of Legality under section 338 of the Colombian Constitution requires that
the Law directly establishes the active and passive subjects of the tax and the taxable
event.
How will the taxable event be established by December 31st 2022 when the upcoming
tax bill is to be enacted, if the basis for the valuation of unproductive land is not
determined by then? - The prohibition that taxes are confiscatory under section 35 of the Colombian
Constitution forbidding confiscation penalties when the origin of the assets is not illicit,
damaging to the public treasury or contrary to social ethics. This principle has been the
basis for jurisprudence by the Constitutional Court that deems a tax as confiscatory
when the individual’s earnings are destined exclusively to cover the amount of taxes in
a way that does not generate any profit.
How do you keep the new tax from violating section 35 of the Colombian Constitution?
RA will be reporting any advances on the upcoming tax bill and on the implementation of
the mentioned measures. https://www.reyesaa.com/en/
Founding Partner of Reyes Abogados Asociados. Mónica Reyes has extensive experience in International Tax Planning, including aspects related to taxes and contributions, foreign exchange, commercial and labor regulations.
She has participated in important mergers and negotiations and is recognized for her work at the National Tax and Customs Office of Colombia. At Occidental Petroleum she supervised the company’s tax planning. As a partner at Brigard y Urrutia Abogados, she oversaw the tax practice area for ten years.
