On 27 December 2019, Colombia approved a tax reform including a special VAT exemption: On 3 days during 2020, certain groups of goods, such as clothing, appliances and school supplies, are free of VAT. This applied to national purchases and included some conditions such as payment method, price and number of units per buyer.
The objective of this was, according to the government, to encourage household consumption and the revival of the economy. The standard rate of VAT in Colombia is 19%. However, the arrival of COVID-19 led to uncertainty, as economists predicted that households would be cautious with their spending in order to counteract the economic crisis generated by the pandemic. This would prevent any compensation for the economic slowdown.
However, the Colombian government bet on optimism and the first VAT-free day came in the middle of the pandemic, even though the previous day (18 June) had seen the highest COVID-19 mortality rate so far.
There are several lessons that can be learned from this first VAT-free day. In terms of health, the day was marred by crowds and a lack of compliance with safety regulations by both shops and shoppers. In this context, the number of infections recorded in the following weeks spoke for themselves. However, in economic terms, the Industry and Commerce Ministry reported that sales increased by up to 70% compared to last year, while the Tax Administration noted that electronic sales increased by 800%.
Second VAT-Free Day Only for E-Commerce
Considering the advantages and disadvantages, the Colombian government declared that the second VAT-free day would only apply to electronic commerce. Despite the fact that some shops did not have platforms for e-commerce, the economic balance exceeded all expectations, with the highest level of online sales in the history of electronic commerce in the country. Turnover amounted to around COP (Colombian peso) 320 billion, or approximately USD 86 million.
To support its clients, ECOVIS Colombia provides regular information about all government measures and its tax effects on companies. In addition, specific cases are continuously analysed in order to find workable solutions that help businesses, within the Colombian legal framework, to counteract or prevent the impending effects of the current crisis.
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