The Review also presents a benchmark for the VAT in Colombia. The benchmark VAT base consists of final consumption plus gross fixed capital formation by private households, the government and non-profit organizations; the VAT is levied on a destination-basis. Under the VAT benchmark, the VAT paid on gross fixed capital formation by businesses is recoverable. This gives rise to a negative TE within the VAT, as this is currently not the case in Colombia. This negative VAT TE is likely large, but it has not been reported previously. The current exclusion of VAT on goods and services that are taxed under the “National Consumption Tax” also results in a VAT TE.
The Review makes several technical recommendations on how to improve the estimation methodology of VAT TEs in Colombia. In particular, the Review presents a methodology that would allow Colombia to differentiate its estimate for VAT non-compliance by economic sector in order to better disentangle TE revenue forgone from revenue losses due to tax evasion. Colombia could also start measuring the negative TE linked to the non-recoverability of VAT paid on investment in fixed assets. Significant scope exists to improve the measurement of revenue foregone from the VAT exemption within Free Trade Zones.
Source OECD
