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Colombia Congress Cuts Proposed Bond Tax Rate to 14%

Colombian lawmakers cut the proposed tax on foreigners’ bond profits to 14 percent, from a previous proposal of 25 percent, in draft legislation being debated in Congress, Senator Juan Mario Laserna said in an interview today. The tax is currently 33 percent.

The modification would return the proposed rate to the level President Juan Manuel Santos advocated in November. Bonds tumbled on Dec. 11, pushing yields up the most in a year, after lawmakers said they wanted to cut the rate to 25 percent, rather than 14 percent. Congress is also debating a 5 percent tax on dividends exceeding 100 million pesos ($56,000), which are currently untaxed, Laserna said.

Colombia is looking to reduce yields in the $83 billion local debt market by attracting more foreign investors with a tax cut, Public Credit Director Maria Fernanda Suarez said in an interview last month. The yield on Colombia’s government peso bonds, known as TES, due in 2024 fell to a record low this month, as investors bet the tax cut would entice foreign buyers.

“A 14 percent rate would be very favorable for TES,” Daniel Velandia, the head of research at Correval SA brokerage in Bogota, said in a telephone interview.

The yield on the government’s 10 percent peso-denominated bonds due in July 2024 fell four basis points today, or 0.04 percentage point, to 5.97 percent, according to the central bank. It has fallen 163 basis points this year. The yield may drop to 5.6 percent or 5.7 percent early next year if the rate is cut to 14 percent, Velandia said.

Angel Custodio Cabrera, the lawmaker who had proposed the 25 percent rate, said in a phone interview today that he has agreed to the 14 percent level.

Colombian lawmakers will allow extra sessions for debate on the bill, extending the time available to vote on tax reform legislation beyond the previous deadline of Sunday, congressional president Roy Barreras told lawmakers in Bogota today.

The tax rate should be 25 percent for investors from countries considered tax havens, and 14 percent for investors from “normal” tax jurisdictions, Laserna said.

The currency depreciated 0.1 percent to 1,796.75 per U.S. dollar at the close in Bogota.

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