Colombia Raises Taxes on Banks and Wealthy Citizens

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The Colombian government has announced tax increases for the country’s largest banks and wealthiest citizens, invoking an economic emergency mechanism, reports Bloomberg. Congress had previously rejected the proposed measures, but the new regime allows tax changes to be introduced without parliamentary approval. Authorities justify the move by citing a deteriorating fiscal position and the need to boost spending on health care and security.

Colombian President Gustavo Petro said the government is raising the top wealth tax rate to 5% from 1.5%. At the same time, the threshold at which the tax applies is being lowered to 2 billion Colombian pesos, or about $530,000, from the previous 3.6 billion pesos. These parameters fully mirror proposals earlier submitted by the government and rejected by lawmakers.

Additional tax pressure will be placed on the financial sector. The surcharge for companies operating in financial services will triple to 15%. As a result, banks and other financial institutions are set to become one of the key groups the government is relying on to replenish the budget.

Earlier, congressional economic committees shelved a bill intended to secure funding for the 2026 budget amounting to 16 trillion pesos, or about $4.1 billion. Without these funds, the government would have had to delay the implementation of several programs or cut spending. Following this decision, the Colombian president declared an economic emergency. The corresponding decree states that the country’s public finances are under severe pressure and that parliament’s refusal to back the tax reform has created the risk of underfunding key budget areas. Priority spending includes the health care system and internal security measures.

According to Petro, without a tax reform Colombia’s fiscal deficit could widen to 7.5% of GDP by 2026. That period coincides with the next presidential elections, further increasing political uncertainty. Fitch, for its part, expressed doubts that a potential change in leadership would automatically lead to an improvement in the country’s fiscal trajectory.

Finance Minister German Avila said the economic emergency is aimed at recovering 16 trillion pesos in lost revenue following the rejection of the tax bill in Congress. Authorities plan to use emergency powers to close the budget gap and prevent further deterioration of the country’s financial position.

An economic emergency grants the executive branch the authority to alter tax policy without following standard parliamentary procedures. Unlike regular budgetary decisions, such measures can be enacted through presidential decrees. In Colombia, however, such powers have traditionally been used in response to extraordinary events, including natural disasters and pandemics.

Luis Fernando Mejía, head of the Fedesarrollo think tank, said there is no unforeseen event in the current situation that would justify the declaration of an emergency. According to him, the Constitution requires the existence of a threat capable of seriously and immediately disrupting the country’s economic, social, or ecological order, and demonstrating such risks in this case is difficult. Mejía did not rule out the possibility that the Constitutional Court could overturn the decree.

Meanwhile, Fitch Ratings downgraded Colombia’s sovereign rating to BB from BB+, pushing it deeper into speculative territory. The agency pointed to persistently large fiscal deficits and weak prospects for their reduction over the medium term.

Analysts at International Investment note that the combination of emergency tax hikes, weakened institutional procedures, and deteriorating credit assessments increases risks for Colombia’s investment climate. While the measures may provide short-term budget support, over a longer horizon the key factors for markets will be the Constitutional Court’s decision and the government’s ability to restore fiscal policy predictability amid the 2026 political cycle.