The impact of tax reform on Colombia's oil sector

Colombia's proposed tax reform would burden oil and gas companies with up to 6tn pesos (US$1.4bn) annually in additional costs, according to a new report published by the Colombian Petroleum Association (ACP).

The bill, presented to congress last month, includes a 10% levy on oil and gas exports, eliminates free trade zone-status for offshore projects and removes royalties from a list of deductible items for income tax purposes.

It would also end accelerated amortization for exploration investments and abolish the CERT tax refund certificate program, which provides E&P incentives during times of low prices.   

"The reform would generate ... an additional annual cost overrun for the sector of between 3.7tn and 6tn pesos," ACP said.

The figure equates to 15-24% of the overall revenue the government is seeking from the reform, according to the Bogotá-based entity.

It added that the government take in the sector would rise to 80%, up from around 65% today. 

"[There are] new taxes that generate different treatments between companies, without taking into account whether the projects are profitable or economically viable," the report warned

ACP also pointed out that excluding royalties from deductions on income tax did "not correspond to international practice."

"In order to generate tax revenue ... in the medium and long term and in the framework of a comprehensive transition, the sector needs sustainable growth. For that to occur, the country must be competitive to attract the required investment," it said.

The full report, in Spanish, can be seen here