Corporate Tax

Colombian tax reform might have a damaging affect on corporate lending: Fitch

BOGOTA (Reuters) – A tax reform planned by the Colombian government to raise money to help the country cope with the aftermath of the coronavirus pandemic could have a negative impact on corporate lending, but it will not be enough to raise funds Affect creditworthiness, Fitch said.

The government will seek to raise around $ 7 billion through the reform, significantly more than previously envisaged, based on documents Reuters saw Tuesday.

The reform will require around $ 835 million from corporations, according to documents the Treasury Department has presented to corporate groups. Businesses would see income taxes cut, but many deductions would be removed from 2023.

“The potential suspension or postponement of tax breaks that were enacted in late 2018 carries a downside risk to Fitch’s outlook for issuer operating income and cash flow,” Fitch said late Tuesday.

Fitch estimated that Colombian corporate cash flow would hit 85% prepandemic levels in 2021 and fully recover in 2022.

“However, cash flow recovery in some sectors could be negatively impacted by tax reforms, especially if higher input costs or tax burdens are passed on to consumers and dampen demand,” said Fitch. “An expanded sales tax on goods could also put pressure on demand in the restaurant, retail and other consumer discretionary sectors.”

However, the tax reform will not be enough to trigger downgrades of companies, the rating agency said.

“The financial impact is not expected to be large enough to trigger downgrades. However, an assessment of the effects on individual companies is carried out after the completion and implementation of a tax reform and taken into account alongside other factors such as economic conditions and the ongoing risk of pandemics. ”

The Colombian corporate tax rate of 33% was the second highest among the Organization for Economic Cooperation and Development (OECD) countries after France in 2019, Fitch added.

Fitch, who predicts the Colombian economy will grow 4.9% this year, lowered the country’s credit rating from BBB to BBB- in April 2020, while maintaining a negative outlook.

Reporting by Nelson Bocanegra; Writing by Julia Symmes Cobb. Adaptation by Jane Merriman

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