Colombian Duque withdraws tax reform bill after violent protests

Colombian President Iván Duque on Sunday asked Congress to withdraw his much-criticized tax reform bill after five days of sometimes violent street protests in which at least six people were killed.

The beleaguered president said his government would soon introduce an alternative bill “which is the product of consensus.” He insisted that some sort of tax reform was needed to stabilize Colombia’s finances and help cover the loss of income and the sharp rise in social spending caused by the coronavirus pandemic.

“Reform is not a whim. Reform is a necessity, ”he said in a video speech in which he was surrounded by nearly a dozen members of his cabinet.

Notable absent from the video was Finance Minister Alberto Carrasquilla, the architect of the reform. This fueled speculation on social media that he was on the verge of resigning or being fired. Some commentators and opposition politicians have said the protests will continue until Carrasquilla steps down.

Duque confirmed that some of the content of the original bill would be scrapped, including a plan to increase value-added tax on goods and services. He also had to give up a plan to increase VAT on fuel.

Instead of, Duke suggested that the new text would increase taxes on businesses.

Reform is the most important law in Colombia this year. The investment status of the country depends on it.

Fitch and Standard & Poor’s rate Colombia BBB- with a negative outlook for long-term debt issuance. It’s just a cut above non-investment or junk status. Moody’s rates Colombia Baa2, two notches above the junk.

If the reform fails or is watered down, there is a good chance Colombia will be demoted – demoted from a small group of good quality Latin American countries that includes Mexico, Chile and Peru.

It would be a blow to a country which, despite its long civil war and well-documented anarchy, prides itself on fiscal rectitude. Unlike most countries in Latin America, Colombia has not defaulted on its debt since the 1930s and has enjoyed prime status since 2011.

Protests against the reform began on Wednesday with a nationwide strike that drew more people than expected. Protests have since continued and turned violent, especially in Colombia’s third largest city of Cali, where shops were looted and buses set on fire.

Human Rights Watch, a US-based NGO, said it has confirmed six deaths related to the protests, including four in Cali. A policeman was killed in Soacha, a gravelly satellite town on the outskirts of Bogotá. Local NGOs estimate the death toll in the country at 20.

The government initially aimed for reform worth 1.4% of GDP, or $ 4.1 billion, by removing some tax exemptions and broadening the tax base, among other measures.

Despite its setback, Duque’s right-wing Center Democratic Party holds less than 20% of the seats in Congress and may struggle to push the new bill through Congress.

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