December 13, 2011 / 9:49 PM / 8 years ago

UPDATE 1-INTERVIEW-Colombia fight against evasion, graft to boost tax take

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By Helen Murphy

BOGOTA (Reuters) - Colombia’s battle against corruption and evasion will help boost tax revenue to as much as 100 trillion pesos ($51.8 billion) next year as the Andean nation attracts fresh sources of funds to its accelerating economy.

Juan Ricardo Ortega, head of the nation’s DIAN tax agency, forecasts tax collection may grow 16 percent from about 86.3 trillion pesos this year as imports surge and his agents and customs officials crack down on contraband, trafficking and corporate tax dodging. Last year tax revenue reached 70.1 trillion pesos, he said.

Tax revenue “grew about 50 percent in two years,” Ortega said in an interview with Reuters. “Clearly there is a dose of economic growth ... and we have started to detect all the loopholes in the system.”

Colombia loses as much as 6.5 trillion pesos annually to contraband and evasion as criminal groups and corrupt officials avoid paying duties, launder proceeds from narco trafficking and enrich themselves from the sale of smuggled goods like whiskey, cigarettes and other imported goods.

The increase in tax collections illustrates advances made by President Juan Manuel Santos as he seeks to clean up Colombia’s image and attract foreign investment after a half-century fight with insurgent groups and crime gangs tarnished its reputation.

Each percentage point of economic growth generates about 800 billion pesos, while a declining economy cuts up to four times that, Ortega said. The extra tax revenue will likely help reduce Colombia’s debt levels, Ortega said.

Ortega hopes a government tax reform will clarify the “rules of the game” for residents as well as companies, reducing costs and generating employment.

The reform, which will be sent to congress in March, seeks to streamline the “complexities” of the tax law and make it clearer for sectors like energy and mining to avoid any “questionable” interpretation.

“Colombia’s tax code is not good, it’s badly written, has big defects,” said Ortega, who formed part of the government’s attempt to negotiate peace with FARC rebels a decade ago.

Colombia has attracted billions of dollars in foreign direct investment over the last 10 years, boosting oil and coal output after a U.S.-backed offensive helped troops deal crippling blows to Marxist guerrillas, right-wing paramilitaries and cocaine cartels.

Market-friendly economic policies and improved security won praise from the three major Wall Street rating agencies, all of which upgraded the Andean nation to investment-grade status this year.

“Nothing is black or white” in a tax investigation, Ortega said. The government is studying the ways energy and mining companies report and pay their taxes. “We want to have absolute objective and material clarity of what’s happening to figure out what’s reasonable and just for all.”

“We want to investigate to understand a very complex sector that moves a lot of money and that has poor rules of play,” Ortega said.

The tax reform is aimed at spurring higher growth and creating more jobs, without increasing the tax burden on Latin America’s No. 4 oil producer.

Santos hopes a reform of the tax system will bring in additional revenue as the economy grows at least 5 percent this year and next.

Last year, the government undertook a mini-tax reform, cutting import tariffs and eliminating some tax exemptions. The DIAN tax agency has been able to close tax loopholes and bar large contributors from cashing in on VAT rebates, which has also boosted revenue. (Reporting by Helen Murphy, Nelson Bocanegra, Luis Jaime Acosta and Carlos Vargas)

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