In a bid to build consensus, Colombia’s Finance Minister German Avila presented a new proposal to Congress that reduces both next year’s budget and the projected revenue from a potential tax reform by 10 trillion pesos (approximately US$2.5 billion). This move aims to break the current deadlock between the government and opposition parties ahead of a critical deadline next Monday.
It is worth recalling that the national budget for 2025 was ultimately approved by presidential decree last December. The growing fiscal deficit now makes it imperative for the state to increase its revenue and adjust public spending.
Petro’s gestures in Colombia to get the budget and tax reform approved
During a session today, Thursday, Sept. 11, Colombian Finance Minister German Avila presented a new proposal to the House committees reviewing the 2026 budget draft. These committees have until next Monday, Sept. 15, to approve the government’s proposal before a plenary vote.
The reality is that this budget discussion is tied to a tax reform bill (which the government calls the “financing law”). Initially, the reform sought to raise an additional 26.3 trillion pesos (approximately US$6.5 billion) through changes to VAT rates on certain goods and services, modifications to income and wealth taxes, among other measures.
However, this Thursday, the finance minister announced that although the government’s proposal is reasonable, an adjustment will be made to garner more support for the bill, following discussions with the Legislative branch in search of consensus.
According to Avila, the government will reduce both the 2026 budget and the financing law by 10 trillion pesos (approximately US$2.5 billion). Thus, the budget would drop from 556.9 trillion pesos (approximately US$139.2 billion) to 546.9 trillion pesos (US$136.7 billion), and the tax reform would be set at 16.3 trillion pesos (US$4.1 billion).
The minister reiterated the importance of approving his tax reform proposal to ensure state funding and prevent an excessive increase in the deficit — a risk that rating agencies and Colombia’s own central bank have been warning about for months.
The controversial tax reform that would increase VAT on more products
Prior to today’s adjustment, the opposition had been openly critical of the government’s tax reform proposal, warning it would increase taxes for the vast majority of the population — a claim the government has vehemently denied.
However, despite rumors and subsequent denials, the government’s initial proposal included applying the standard VAT rate (19% in Colombia) to hybrid vehicles, liquors, tobacco, and fuels, which would increase the final price consumers pay for these products.
With the changes announced today in Congress, the finance minister argues that, despite the promise not to tax the family food basket being kept, the ministry’s technicians will review and eliminate some of these measures due to the 10-trillion-peso reduction in projected revenue.
Although the minister did not provide specifics, it is expected that the initial intention to apply the full VAT rate to fuels will be revised. The price of fuel has nearly doubled in Colombia over three years after the government decided to stop subsidizing it. Similarly, some liquors, especially beer, might remain as they are now, without the full VAT.
“We believe the tax burden should be progressive, and in that regard, we consider it necessary to maintain the proposals on income and wealth, which, as designed, guarantee a high level of progressivity,” the minister said.
The decision now rests with the congressional committees studying the 2026 budget proposal. If no agreement is reached by next Monday, the law would likely follow the same path as last year: eventual approval by decree, with the evident risk of increasing the fiscal deficit, which has already risen sharply this year.