Starting Thursday, May 29, most Colombian companies will face a higher percentage of money withheld as an advance payment on income taxes. This is mandated by decree 0572 of 2025, issued by the Ministry of Finance, allowing the government to expedite tax collection from 2026 to this year. Concerns have been raised by economists and industry groups, highlighting the temporary nature of the solution. María Claudia Lacouture, president of the Colombian-American Chamber of Commerce, points out on X that this is a short-term fix that could hurt companies without addressing the underlying issue.

The decision comes as part of the government's ongoing efforts to alleviate its fiscal deficit, which is nearly 7% of the GDP, requiring coverage of at least 12 trillion pesos. The decree will not fully resolve the debt but is seen as a swift way to restore economic solvency, given the political impracticality of a new tax reform—common practice in Colombian governance. This is the first major decision by newly appointed Finance Minister Germán Ávila Plazas, who replaced Diego Guevara, known for advocating budget cuts and seeking additional revenue, strategies with long-term effects.

The Ministry's decree justifies the increased tax retention based on sector-specific analyses. Simulations estimated the discrepancy between actual taxes and retention amounts for 2025, based on previous years' tax and retention declarations. A detailed 20-page table outlines heightened rates for various sectors, with gas, gold, electric energy, and water treatment plants facing a 4.5% rise.

Following closely are services like furniture repair, beauty treatments, funeral services, household employment, gambling, sports clubs, and amusement parks, at 3.5%. Also included are business associations, employer groups, religious and political organizations, and educational institutions from daycare to technical schools. Universities, experiencing financial strain, have a 1.10% rate. Artistic fields like literary, audiovisual, and theater production face a 3.5% rate. However, crude oil extraction sees a 2.7% rate.

The tax retention mechanism ensures timely tax collection through a steady resource flow, allowing the government to collect taxes like VAT, ICA, or income tax in advance. Companies receive payments, and withholding agents deduct a portion to remit to the state. Larger firms self-administer this process, known as self-retention.

José Ignacio López, president of the Economic Studies Center ANIF, comments on X that such adjustments typically follow tax reforms raising taxes. He questions the legal and economic rationale beyond immediate fiscal needs for 2025 at the expense of 2026's finances. Many business owners argue the increase disproportionately affects small and medium enterprises, impacting cash flow and potentially forcing them to seek bank loans, cut costs, or even close or lay off staff. Despite these challenges, this remains the government's primary approach to managing its fiscal deficit.