Colombia’s new government must drop taxes on oil exports from a proposed tax reform and scrap plans to stop energy companies from offsetting taxes with royalty payments, in favor of surcharges based on production, the private oil producers association said on Thursday.

Colombia’s new leftist President Gustavo Petro has proposed a tax reform bill to lawmakers which would raise some 25 trillion pesos ($5.7 billion) in 2023, before eventually adding some $11.5 billion annually to government coffers, in an effort to increase revenue for social programs.

The reform would levy a 10% tax on oil exports once the price exceeds $48 per barrel.

Oil prices are expected to average $104 per barrel this year, according to the Colombian Petroleum Association (ACP), which represents private producers, providing the state with an extra 24 trillion pesos in 2022.

But the proposed reform will generate extra costs of between 3.7 trillion and 6 trillion pesos ($842.9 million and $1.4 billion) for the sector, the ACP said, threatening the economic viability of some projects and hastening the end of the country’s energy self-sufficiency.

“This puts production exploration and production projects at risk, since the tax burden will rise,” ACP President Francisco Lloreda told journalists.

Under the ACP’s proposal, companies would see an additional percentage point placed on their regular tax rate once oil hits $75 per barrel, rising to two and three percentage points, respectively, if average prices exceed $85 or $95 per barrel.

The measures will ensure that Colombia “continues to be competitive and that we do not endanger planned exploration and production, nor send a message to foreign and national investment that this industry is not competitive,” Lloreda said.
Source: Reuters (Reporting by Oliver Griffin; Editing by Paul Simao)