The government will remove electricity surcharge exemptions from several sectors: what are they?

As part of the process of rationalizing resources, at a time when the country is facing a severe fiscal crisis, the government published a draft decree for comment that redefines the scope of tax exemptions from the special surcharge on the electricity sector.

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This is evident from a document published by the Ministry of Finance, which modifies the regulations established by Decree 2860 of 2013 and seeks to focus the benefit solely on manufacturing industries, excluding other sectors that have previously enjoyed this exception.

The sought change is related to Article 2 of Law 1430 of 2010, which established that industrial users would not be subject to the electricity surcharge starting in 2012. It then expanded the definition of industrial users to include a broader range of activities in 2013, including mining and quarrying, construction, and agriculture, among others.

Therefore, the proposed regulations explain that only users whose main activity corresponds to codes 101 to 332 of the International Standard Industrial Classification (ISIC), that is, only manufacturing industries, will be considered industrial users.

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With the proposed adjustment, sectors such as agriculture, mining, construction, energy, and water will have to return to paying the solidarity contribution that finances subsidies for social strata 1, 2, and 3.

Expected impacts

According to the document, the Ministry of Finance aims to reduce the tax burden resulting from electricity subsidies, which in 2024 reached a growing deficit compared to solidarity contributions, as well as improve the targeting of tax spending, ensuring that relief reaches the sector most sensitive to energy costs, such as manufacturing.

In round numbers, removing these exemptions, the Executive aims to generate fiscal savings of $1.2 trillion annually, which would contribute to alleviating public finances and reducing the use of resources from the General Budget of the Nation to subsidize rates.

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Currently, according to Ministry of Finance calculations, the fiscal cost of the exemption, which currently amounts to $3 billion annually, would be reduced by 40% by focusing solely on manufacturing. For the sectors that will no longer benefit from this benefit, the change will mean higher tax burdens on their energy bills. However, in the document, the Executive branch argues that its financial strength and fewer linkages justify the reallocation of the benefit.

This would be the impact by sectors

In the justification for improvement, the Ministry of Finance's analysis indicates that the manufacturing industry would be the most affected by the adjustment, with a total increase of 0.31% in its production costs, the highest among the sectors. For this reason, the proposal is that it continue to benefit from the exemption, given its high level of productive linkages, job creation, and loss of GDP share (from 22.8% in 1975 to 11.1% in 2024).

Meanwhile, the mining and quarrying sector is expected to see a 0.18% increase in costs, but it emphasizes that, with high after-tax profit margins (9.8% in 2023) and intensive use of tax benefits, the Gustavo Petro administration believes it can assume this new burden.

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For the agricultural sector, a 0.13% impact on costs is expected. While the government notes that it is an activity with a low burden of industry and commerce taxes and royalties, the Ministry views it as a sector better able to withstand the adjustment.

Meanwhile, three other sectors affected by the proposed initiative would be construction, the information and communications sector, and the supply of electricity, gas, and water.

For the former, the cost increase would be 0.09%, and the document notes that because this line item already receives significant tax benefits (more than $2.5 trillion in 2023), it is proposed that it be excluded from the exemption.

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For the information and communications sector, the calculations made by the Ministry of Finance's technical team would be 0.06% in costs, given that its effective tax rate is one of the lowest (20.8%).

And finally, for electricity, gas, and water supply activities, the document projects a marginal impact of 0.03% on their costs, and they would also lose the benefit of the electricity surcharge, given their high profitability, which was 11.2% after taxes in 2023.

Omar G. Ahumada Rojas, General Editor of Portfolio