Everything You Need to Know: Impuesto Predial Tax Reform Project - Medellin Advisors %

Everything You Need to Know: Impuesto Predial Tax Reform Project

Impuesto predial

In recent days, a sensationalist headline has sparked alarm among many people in Colombia, as most media outlets emphasized: “The Government will increase property taxes by up to 300%.” Almost simultaneously, various sectors of the economy and the opposition seized the opportunity to launch strong criticisms against government officials. Almost immediately, President Gustavo Petro refuted this version and clarified that the intention is precisely to limit these increases and provide relief to owners in lower strata. Who is telling the truth? We will soon find out. Join us in this special edition to learn all the details of this heated topic

Government of Gustavo Proposes Property Tax Reform in the Congress of the Republic
Colombia is a country that has always respected private property.

Impuesto Predial: One Project and Two Contrasting Versions

The narrative of this property tax issue in Colombia is very sensitive and can be extensive when searching the internet, we immediately find several equally outrageous headlines, which generate more questions than answers, among them:

Impuesto Predial could increase up to 300% for some owners.
How will the proposed property tax reform affect Colombia?
The Government presents a project to limit the increase of the property tax.
Owners of strata 1 and 2 homes will benefit from the new property tax”.

In this article, we will analyze everything you need to know and more.

SEE ALSO - Nationwide Protests in Colombia: What's Happening? SEE ALSO - Colombia Exceeds Expectations of Economic Growth in 2021
Property tax is a thorny and sensitive issue for everyone in Colombia

Chronicle of a Controversial Impuesto Predial Reform

Last November 8, 2023, a bill # 292/2023C was formally filed in the Congress of the Republic, by which measures are adopted regarding the Property Tax “Impuesto Predial Unificado“. This bill was announced by the Minister of Finance and Public Credit, Ricardo Bonilla Gonzales, with the endorsement of the Minister of Agriculture and Rural Development, Jhenifer Mojica Perez.

Archive fotos eadc dac ecfbbfca eafb
Property taxation is a sensitive issue for all people


The content proposed by the Government of Gustavo Petro was published in Gazette #1577 of 2023, generating a real battle for and against. Thus, almost immediately the media and sectors of national politics and economy have issued an opinion on a transcendental matter, for its fiercest detractors it represents the intention of the government to generate more taxes to the detriment of the owners of urban and rural properties. However, for the government it is not a matter of increasing the tax base, but of imposing limits to the exaggerated increase of this tax, which is collected by the local administrations (Mayors’ Offices: Municipalities and Districts), thus seeking progressiveness and tax efficiency and protection of the right to private property.

Property tax is the responsibility of the owners of real estate in Colombia.
Property tax is the responsibility of the owners of real estate in Colombia

Current Situation of Impuesto Predial Collection in Colombia

According to the Ministry of Agriculture, the project is aimed mainly at rural areas, where there has been no cadastral updating. To date, only 128 municipalities in Colombia have updated their cadastral values, out of a total of 1,102 municipalities. This is equivalent to only 11.62% of the country’s territory.

Colombia's cadastral update has been slow to progress
Colombia is one of the most unequal countries in terms of land distribution

Currently, municipalities have broad powers to update cadastral values each year, which is an element that serves to determine the amount to be paid for property tax (property tax). This has generated frequent complaints from some property owners in Colombia, who have been informed of increases in the value of this tax of up to 1000%, where there are no limits for local administrations.

Colombia has established limits to property tax increases
Colombia has established limits to property tax increases

A Hidden Land Reform or Pandora's Box?

It should be noted that the laws in force have set clear limits on the increase of property tax by the municipalities, setting clear limits to these increases, which in no case should increase more than 100% of what was paid the previous year. For critics this is the red line that the national government is stepping on by allowing and legitimizing increases higher than 100%, this would be a bad precedent since it would allow increases up to 300% per year, affecting the pockets of the owners.

For critical sectors, the reform of the impuye is impertinent
For critical sectors, property tax reform is impertinent

According to the government, it seeks to impose maximum ceilings for the increase of this annual tax, to benefit small and medium landowners, so that people will pay proportionally to the cadastral value of their urban or rural properties. Under this principle, large landowners will have to pay more than what they currently pay and this will help the income of the territorial administrative entities that collect this tax by law.


Law 44 of 1990 established the system of annual adjustment to the value of cadastral appraisals. This cannot be higher than 100% of the Consumer Price Index (CPI). In the government of Iván Duque the annual increase was limited to the CPI value +8% by Law 1995 of 2019, which generated a relief for many owners in Colombia.

The bill proposes a series of changes to the Impuesto Predial Unificado, among which are included:

The reform proposes to establish limits on the annual increase of property tax by Municipalities, through staggered caps based on the cadastral value of properties. These caps would apply to all property owners, regardless of their socioeconomic stratum. However, according to the government, this rule protects owners of low-income housing, as properties in strata 1 and 2 would pay less property tax than those with higher cadastral values.

Mi casa ya subsidios de vivienda colombia fotos pixabay jpg
Property tax increases always generate controversy in Colombia

What is the scheme of caps proposed by the Government for the annual adjustment of Property Tax? In summary, the proposed model is as follows:


These are the property tax increase ceilings proposed by the Government of Gustavo Petro.
The Government presents its proposal to cap the increase in property taxes in Colombia

The Ministry of Finance has stated that the reform is a system of relief that allows all Municipal Councils and Mayors’ Offices to organize the payment of the property tax once the cadastral appraisal comes into effect, as follows:

*Properties with updated cadastral appraisal lower than 135 minimum salaries: the property tax may not exceed 50% of the one paid last year.

*Properties with updated cadastral appraisal between 135 and 250 minimum wages: the property tax may not exceed 100% of that paid last year. Today, as the norm stands, they would pay more than 1,000%.

*Properties with an updated cadastral appraisal between 250 and 350 minimum wages: the property tax may not exceed 150% of that paid last year. With the current regulation, it would pay up to 1,000% compared to the previous year.

The Minister of Finance has promised that the Government does not intend to increase the property tax with the presented reform, but to curb the increases.
The Minister of Finance has promised that the Government does not intend to increase the property tax with the presented reform, but to curb the increases.

*Properties with updated cadastral appraisal between 350 and 500 minimum wages: the property tax may not exceed 200% of that paid last year. Today, as the norm stands, it would pay up to 1,000% compared to the previous year.

*Properties with updated cadastral appraisal higher than 500 minimum wages: the property tax may not exceed 300% of that paid last year. Today, with the current regulation, they could pay more than 1,000% of the property tax compared to what they paid last year.

According to the Minister of Finance and Public Credit Ricardo Bonilla: “The construction of this relief system gives clarity and transparency to the Municipal Councils”.

Who Would Really Be Affected by the Impuesto Predial Proposed by Gustavo Petro's Government?

Currently, any property owner in a Colombian city pays more property tax than a large landowner in the countryside, which generates economic and social inequity.  The government of Gustavo Petro has strongly defended the proposal presented in the National Congress, arguing that contrary to what the media and adverse sectors point out, the new property tax proposal seeks to protect the right to decent housing and property, preventing the fiscal voracity of the municipalities from being confiscatory or violating these constitutional rights.

The Government defines the proposed reform as a system of relief from property tax increases.
The Government defines as a system of relief from property tax increases, in the reform it proposes, for the opposition it is a dangerous increase that seeks to be legitimized

Colombia is a very unequal country, where large capitals are equally the owners of urban and rural land, this phenomenon comes from colonial times, according to official studies by DANE in 2022 in Colombia, only 39% of its citizens are owners of the place where they live, so the rental market is clearly greater than the owners, some say an average Colombian can take 20 working to have any option to acquire a home of their own. This inequality has been difficult to change, and governments that have initiated such a change have had serious difficulties given the sensitivity of the issue and the powerful economic sectors they face.

Petro’s government has stated that it will seek to democratize access to property rights for all people. So it is foreseeable that anything that has to do with changes in the system will unleash a pitched battle.

In Colombia only 39% of people own their own home
In Colombia only 39% of people own their own home

For the opposition, the government is looking for large landowners to sell land to the government because they are unable to pay the new increases in value and thus revive a questioned Reforma Agraria in which Petro had promised to grant land to rural sectors.

Voices Opposed To The Proposed Reform: Housing Crisis in 2023

Faced with Bill # 292 of 2023, which changes the growth limits of the unified property tax (IPU), important voices in the country have expressed their concerns, firstly, the Colombian Chamber of Construction (Camacol) considers that the proposal may generate high increases in the costs associated with property tax, since the bill presented by the Petro government proposes property tax increases of between 50% and 300%, and up to 100% in the segment of housing of social interest (VIS). Regarding VIS, sales this year have registered a 53% drop so far in 2023, which implies that about 73 thousand social interest housing units have not been sold compared to 2022. 

According to Camacol’s representative: “Inflation, high-interest rates, and changes in housing policy have been factors that have contributed to the drop in sales, which in turn have triggered resignations, mainly affecting lower-income households. As of September 2023, close to 30 thousand households have had to give up the process of buying a home, and of these 23 thousand gave up the purchase of a VIS”, Camacol said.

Drop in housing sales in 2023 worries construction sector
Drop in housing sales in 2023 worries construction sector

Guillermo Herrera of Camacol pointed out that: “the right to decent and affordable housing must be a priority…, so we urge that measures aimed at generating development in the regions take into account the current needs and capacities of Colombian households, whose situation requires measures that encourage and promote the generation of housing, and not that, on the contrary, generate higher costs and barriers to access”. He concluded by saying that it is important to keep in mind that by 2023 Colombians will stop investing $17 billion in new housing purchases and that leases face important pressures that could be greater if new taxes are added.

Construction sector reports slowdown in housing sales this year, more than 30 people have given up on projects
Construction sector reports slowdown in housing sales this year, more than 30 people have given up on projects

The Minister of Housing, Catalina Velasco, denied the report presented by Camacol arguing that it is inaccurate and indicating that they are granting more subsidies to poor people with the Mi Casa Ya Program, unleashing a new controversy between the Government and the private sector. 

“We have increased the average of 33,000 subsidies per year, to guarantee 50,000 per year through the National Development Plan (PND) of the government of President Gustavo Petro, an unprecedented annual investment,” said the Minister in defense of the government.

The Minister of Housing has refuted the report from Camacol, sparking a new controversy.
The Minister of Housing has refuted the report from Camacol, sparking a new controversy.

Some of The Challenges The Bill Faces in Order To Become a Reality

The delayed cadastral update in areas where it has not yet been carried out: Logically, when this update is done, there will be increases in the property tax amount, as there are cities where this update has not been done for more than fifteen years. So, there are indeed many people paying very little and below the market value of their properties. Therefore, when the situation is corrected, it is foreseeable that there will be quite a few complaints when it is implemented, making it very difficult to please all the involved sectors.

The Property Tax Reform will have to face debates in Congress, where the government has lost significant support in recent months.
The Minister of Housing has refuted the report from Camacol, sparking a new controversy

The opposition from property owners, political adversaries, and guilds such as construction and real estate: Some property owners oppose the bill, arguing that it will increase the costs of private property. Those who oppose this reform fear that giving the government an opportunity would be opening Pandora’s box, from where a feared land reform could begin.

This project requires at least four debates in Congress to become a reality:  Let’s remember that the Health Reform has been in discussion for more than 8 months without making progress. So, although it is likely that the bill will be approved, substantial modifications may be made, as the Government has lost support in both chambers of the Congress of the Republic. Therefore, it must necessarily negotiate the most contentious points to achieve its goal. 

The government has initiated an informational campaign to refute claims that it intends to increase property tax in Colombia
The government has initiated an informational campaign to refute claims that it intends to increase property tax in Colombia

BONUS: What To Do To Confront The Impact of The Possible Increase in Impuesto Predial?

Here are some things that property owners can do to face the impact of the annual increase in Impuesto Predial in Colombia; among them, we have:

1. Request a cadastral review from the Municipality or competent authority in the area where your property is located: If you believe that the cadastral value of your property is incorrect, you can voluntarily request a cadastral review to prevent the cadastral value from increasing suddenly over time.

2. If you have received an exaggerated increase: Property owners have various resources before the authorities and even the courts of the Republic to protect their rights. For example, you can submit a Right of Petition or Protection, Nullity or Replacement Resource for the affectation of the right to property and housing. Many times, the courts of the republic and authorities have sided with property owners when exorbitant increases occur.

3. Consider the possibility of benefiting from a tax advantage: Some property owners may be eligible for tax benefits. For example, communities of small property owners, retirees, single mothers, and, in general, owners of social interest housing, which allow them to reduce the amount of their property tax. 

Seleccion opcion de impuesto predial medellin
The Impuesto Predial Unificado is a sensitive issue in the public opinion of citizens

4. Pay property tax on time: Property owners who pay property tax on time may receive a discount. If it is not possible for you to do so, choose installment payments and plan your personal finances in advance. Payments can be made quarterly, thus avoiding surcharges for late payments.

5. Invest in the property: Property owners who invest in their property can increase its value, which can lead to a reduction in property tax. For example, homeowners who make improvements to their homes can request a review of their cadastral appraisal.

6. Seek professional advice: Consulting with a lawyer, accountant, tax advisor, or real estate professional can provide specific information on strategies to reduce the impact of property tax in a particular situation.

7. Ultimately, if you believe that you are facing a significant increase in property tax that will be unsustainable for you over time, consider selling your property at market price to avoid generating long-term debt. Some people sell and acquire a new property in a lower stratum, thus reducing inherent costs.

 
In Colombia, administrations must respect the right to property and housing.
In Colombia, administrations must respect the right to property and housing.

Conclusions

Although the communication policy of the Government of President Gustavo Petro has been constantly erratic, unleashing controversies almost daily in the political, economic, and social sectors, for now, there are no reasons to seriously think that the country intends to raise the Impuesto Predial burden on owners and investors in the real estate sector.

On the contrary, the project provides protection to the lower estratos and gives greater legal certainty, putting a stop to exaggerated charges by the municipalities. For some, this project is inopportune when this year the Colombian housing market has suffered a drop in sales of more than 50%. This is due to the increase in interest rates, reduction of subsidies, and private investment.

At the political level, the government’s popularity has been plummeting, according to opinion polls at the close of this edition, only 30% of Colombians have a favorable image of the government’s performance less than two years after the beginning of its administration. President Petro has suffered hard setbacks to his health and pension system reform projects, among others, so this new project is unlikely to be approved soon, and it will surely be opposed by the opposition sectors, so it is foreseeable that the government will have to negotiate and debate for it to become a reality. 

Additionally, the results of the October Territorial Elections show a significant erosion of the government. Now, the president must start delivering quick results and seek consensus for the success of his administration; otherwise. President Petro could face citizen protests and social discontent, as happened to his predecessor Iván Duque during his term, of which now President Petro was a staunch critic.

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