Colombia Candidate Promises
More Taxes
By Inti Landauro and Darcy Crowe
CÚCUTA, Colombia - Presidential candidate
Antanas Mockus, who as mayor of Bogotá once
asked residents to voluntarily pay more
taxes, is making a campaign pledge that
would have most politicians trembling:
higher taxes.
Mr. Mockus has gone from running a quixotic
presidential campaign to becoming one of the
top two contenders to succeed President
Álvaro Uribe in elections on May 30. He is
running neck and neck in the polls with
former Defense Minister Juan Manuel Santos,
who is seen as Mr. Uribe's political heir.
The latest polls indicate that Mr. Mockus
would win in a runoff.
Mr. Mockus, a mathematician and former
university dean, recently addressed
thousands of his followers in this
sweltering border town with promises of
higher taxes and clean government.
Mockus adviser Salomon Kalmanovitz, a former
central bank director who is viewed as a
potential finance minister, said a Mockus
administration would put an end to the tax
breaks and loopholes that allow corporations
to pay much less than the headline 33%
corporate tax rate.
The pledge to raise taxes may be popular
with Colombia's poor, who pay little in
taxes and would be less affected by Mr.
Mockus's increases than the rich. Yet it is
also stoking fears that a Mockus
administration could diverge from some of
Mr. Uribe's market-friendly policies that
helped Colombia attract international
investors.
Mr. Santos, meanwhile, promises to dismantle
a financial-transactions tax that
individuals and businesses pay for various
banking operations. His economic platform,
which centers on building up the country's
shaky infrastructure, doesn't mention
raising taxes. The Santos campaign has
assailed Mr. Mockus's economic plan, saying
it wouldn't create jobs.
Mr. Mockus has responded by saying that he
would continue attracting foreign investment
flows to Colombia and that he believes in
free markets. Throughout the campaign, tax
increases have been at the heart of his
economic proposals.
Critics on the left have branded Mr. Mockus
as a conservative for the efforts he made to
control public spending during his time as
mayor and for overseeing the partial
privatization of utility companies.
Detractors on the right say his plan to
raise taxes could jeopardize economic
growth.
His presidential campaign turned down a
chunk of the state financing that political
parties in Colombia receive and said that
the money should be spent on building
schools.
"We are fiscally prudent. Public funds
should be treasured and used with much
care," said Mr. Kalmanovitz.
In an interview with Dow Jones Newswires,
Mr. Kalmanovitz said "To maintain economic
growth, we need to increase tax collection."
For Mr. Mockus, who has a master's degree in
philosophy, raising taxes is not only a
matter of economics, but also ethics. "We
all pay taxes for the common good," Mr.
Mockus said in a recent interview. "If we
want a series of rights written in the
constitution to be granted, we need more
funds and more honesty."
"There is no opposition to that level of
taxes, on the contrary there is more demand
for a better public service," he added.
Statements like that are scaring some
companies in Colombia.
"We consider the current level of tax rates
is already pretty high," said Carlos Urrea,
vice president of the country's largest
lingerie maker, Leonisa SA. "The country
must stay tax-competitive."
On top of the changes to the corporate tax
code, Mr. Mockus's economic team plans to
broaden the range of products that are
charged with a value-added tax, as well as
raise taxes on the wealthy.
"The impact could be very harmful," said
Andres Jimenez, an analyst with local stock
brokerage firm Interbolsa SA. "The next
president should focus on getting more
people to pay taxes and fighting tax
evasion, not on hiking taxes on the
companies and people that are already paying
for everything."
One of most contentious tax breaks is for
free-trade zones, which reduce the corporate
tax rate to 15%. Companies investing in
free-trade zones are also exempted from
paying value-added tax and tariffs on
imported capital goods and some raw
materials.
Mr. Mockus wants to stop granting new
free-trade zones and to get all companies to
pay full taxes, but says existing free-trade
zones would remain intact. Even people
working in free-trade zones consider the
system too generous.
"When you earn a good living, you can afford
to pay taxes," said the chief financial
officer of a foreign company working in a
free-trade zone, who asked to remain
anonymous. The country needs more spending
on infrastructure, including roads and
ports, as well as in education to get
skilled workers, the executive said.
According to Mr. Mockus, competitiveness
doesn't hinge on tax rates. "We believe a
country is attractive not only with its tax
level or tax breaks. I think being protected
from corruption and violence is more
important than one or two points of
corporate tax," he said.
Some economists say that higher taxes, if
spent well, could help the country improve
its competitiveness over the medium term,
but recognize that there are uncertainties
about how an eventual Mockus administration
would translate their theories into
practice.
Many businessmen say this will be a tough
sell for Mr. Mockus, because
Colombians—especially wealthy ones—will be
reluctant to pay more taxes in the
short-term.
"Nobody that has money and a good income
wants to pay higher taxes," said Mr.
Jimenez, of Interbolsa SA. |
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