One of the main barriers to achieving the competitiveness and productivity of companies in Colombia is the labor and business informality, which are configured when workers and firms operate evading regulation (Hamann-Salcedo & Mejia, 2013).

In Colombia, according to CONPES document No. 3956 of 2019, out of 4 microenterprises, 3 are informal. Likewise, labor informality in Colombia as of May 2020, according to the DANE, stood at 46.8%. This has high costs for the country from the point of view of tax revenue (tax evasion) and pressures the social security systems in health and pension.

There are factors that deepen informality, such as the high operational and compliance costs in the declaration and payment of taxes, especially for municipal taxes. According to a study (World Bank, the Secretariat of Finance and District Chamber of Commerce of Bogotá, 2016), in Bogotá, the main business center of the country and has an advanced tax administration, which provides taxpayers tools to facilitate the fulfillment of their obligations, the “Cost of Tax Compliance” is on average 2.3% of the gross income. This value is excessively high when in most cases the municipal tax does not exceed 1%.

In response to the above, law 2010 of 2019 created the unified tax to be paid under the simple taxation regime (hereinafter Simple) as a system for the payment of taxes that has no antecedent in Colombia. This optional system replaces and integrates national taxes (income, sales, the national consumption tax for the sale of food and drinks and occasional profit) and municipal taxes (industry and Commerce, notices and boards and surcharge) (ICAC).

From now on, entrepreneurs and liberal professionals who meet the requirements and opt for this new system of taxation, will pay the taxes in question by electronic means through unified forms that will not demand the physical transfer of the taxpayer. The requirements to opt for the Simple are universal and it is estimated that more than 90% of entrepreneurs in Colombia can access this system.

The RST is not only a response to the high rates of informality in Colombia but also turned out to be a response for entrepreneurs in times of COVID-19, which will allow them to go through the crisis in a better way since their tax burdens and labor costs are alleviated.

In addition to the benefits that are evident in the reduction of formalities, the Simple has, among others, the following benefits: (I) ease of settlement as it is a tax with a flat structure and uniform settlement; (II) it provides cash flow to taxpayers to the extent that those who opt for the RST are not subject to withholdings at source for income and ICA and neither are they obliged to practice them, except for those of a labor nature; (III) it encourages payment by electronic means to the extent that it grants a discount of 0.5% for payments received by the employer by these means; (IV) it reduces the costs of hiring staff by the discount of what the employer pays for the pensions of its workers. The employer may also be exempt from the payment of what corresponds to the contribution to the health of its employees and contributions to SENA and ICBF; V) competitive rates ranging from 1.8% to 14.5% of annual gross income and including 4 taxes: income, industry and Commerce, notices and boards and firefighter surcharge.

For the municipalities there are also benefits such as the exchange of information with the DIAN, joint monitoring, and the possibility of increasing their tax revenues.

Since 2019, the DIAN has made multiple efforts in disseminating the Simple. To date, virtual and face-to-face trainings have reached more than 250,000 taxpayers and joint actions have been carried out with unions, public entities, and individuals in order to disseminate the benefits of the Simple.

The technological efforts have also been important, the DIAN is in the final tests of the systems that will allow sharing information online with the municipalities as mandated by the law. This information is not only taxpayer information but also information on payments and transfers of ICAC Resources whose transfer has been guaranteed in full, without any discount, in a maximum of 12 business days.

Many wanted to equate the Simple with the single tax, and this is not possible as they are different. As we said, municipal and national taxes had never been successfully integrated. The single tax in several years had 99 registered, of which only 13 filed a statement and the DIAN collected COP $ 6,600,000.

A little more than a year after the law that gave it definitive life, the Simple not only passed the study of constitutionality, but also has figures that demonstrate its success as a tool that will contribute to the development and business competitiveness of the country:

• Historical registrations as of April 30, 2021: 34,125

• New registrants as of 30 April 2021 (did not have TIN): 45%.

• Total collection of periods 2019 and 2020: more than COP$ 566,000,000,000

• According to figures from the Ministry of Finance of Bogotá, as of May 31, 2020, 41% of those registered in the Simple taxation regime had never paid taxes to this city. Likewise, according to figures to court July 31, 2020, 49% of those registered in the Simple taxation regime in Barranquilla, had not paid taxes to that city.

This indicates an important formalization that will significantly benefit the finances of the country’s municipalities.

As mentioned, the Simple Taxation System integrates the tax of industry and estate trade of the municipalities. This collection is being carried out only since 2021 which means that, after a period of transition, at this time the taxpayers of the Simple will pay the industry and commerce tax through this new optional taxation system. When we have only collected what corresponds to the months of January and February 2021, Simple has shown that it is also a great tool to strengthen the finances of the country’s municipalities, as on 23 April 2021 more than 45% of the country’s municipalities have received transfers for a value exceeding COP$ 4,000,000,000,000.

In conclusion, in addition to the benefits listed in this letter, the Simple contributes in an important way to the modernization of the national and municipal tax administration and contributes to the DIAN’s objective of being closer to the citizen.

In such a short time and now in which it is most needed, the decision to make things easier for Colombians and the sum of technology, are undoubtedly a very important contribution to the development of Colombia.

**Article originally published in the book “Transformación DIAN por una Colombia más Honesta ” and updated in May 2021.

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