Colombian Court Upholds Ruling on Oil & Mining Royalties

Colombia's Constitutional Court has denied finance ministry requests to modify a ruling allowing oil and mining companies to deduct royalties from their taxes. This decision is expected to increase the country's fiscal deficit in 2024, as the government anticipated financial impacts and adjustments in bond issuance.

Colombia's Constitutional Court denied on Monday proposals from the finance ministry to modify a ruling that struck down a ban on oil and mining companies deducting royalties from their taxes, in a move the leftist government has said will force an increase in the 2024 fiscal deficit. The government of President Gustavo Petro had asked the court to delay enforcement of a previous decision - which said companies can make the deductions in 2023 and 2024 - instead asking that deductions only be allowed from 2025, among other suggestions.

The government argued the deductions will have a fiscal impact of some 6.7 trillion pesos, about $1.72 billion, this year. Finance Minister Ricardo Bonilla said earlier this month in testimony to the court that the striking down of the ban would require an increase in the 2024 deficit and a 10% rise in the issuance of domestic peso TES bonds this year, as well as a 5% increase in TES issuances between 2025 and 2034, to comply with fiscal rules.

But the court rejected the government's proposals and Bonilla's arguments. "The court concluded that the finance minister did not demonstrate that ruling C-489 of 2023 would produce serious alterations in fiscal sustainability," the court said in a statement. "The four alternatives for modulation proposed by the finance minister would violate constitutional laws."

The finance ministry had no immediate comment. The court's original November ruling struck down part of a law that prohibited extractive companies from deducting royalties from their taxable income.

The rule was included in a tax reform passed by the Petro government as part of efforts to fund programs aimed at tackling poverty and inequality. Business associations and industry figures had widely criticized the deduction rule and celebrated the November ruling.

($1 = 3,878.07 Colombian pesos)

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