Colombia Court Upholds Ruling Permitting Companies to Deduct Royalties from Taxes, Reports Reuters

Colombia’s Constitutional Court Upholds Ruling Against Tax Deductions for Oil and Mining Companies

BOGOTA – Colombia’s Constitutional Court has denied requests from the finance ministry to amend a ruling that invalidated a ban on oil and mining companies deducting royalties from their taxes. This decision, according to the leftist government, is likely to increase the fiscal deficit for 2024.

President Gustavo Petro’s administration sought the court to postpone the implementation of a prior decision, which permitted these deductions for 2023 and 2024, suggesting instead that they should only be allowed starting in 2025, among other alternatives.

The government estimates that these deductions will have a fiscal impact of approximately 6.7 trillion pesos, roughly $1.72 billion, in the current year.

Finance Minister Ricardo Bonilla testified earlier this month that the elimination of the ban would necessitate an increase in the 2024 deficit and a 10% rise in domestic peso bond issuances this year. He also indicated a projected 5% increase in such issuances from 2025 to 2034, which would be necessary to comply with fiscal regulations.

However, the court rejected the government’s proposals and Bonilla’s justifications.

In a statement, the court declared, "The finance minister did not demonstrate that ruling C-489 of 2023 would lead to serious alterations in fiscal sustainability. The four alternatives proposed for modulation by the finance minister would violate constitutional laws."

The finance ministry did not provide an immediate comment following the court’s decision.

The court’s original ruling from November nullified a portion of a law that had previously prevented extractive companies from deducting royalties from their taxable income. This regulation was a part of tax reforms enacted by the Petro administration, aimed at funding programs addressing poverty and inequality.

Business groups and industry representatives had largely criticized the deduction regulation and welcomed the court’s ruling in November.