Colombia Risks Becoming ‘Tax Hell’, 1841 Foundation Index Says

The 1841 Foundation’s ‘Tax Hell Index’ for 2023 has placed Colombia on the watchlist for becoming a ‘tax hell.’ This label describes countries where heavy taxation intersects with inefficient government management, leading to a difficult situation for taxpayers. As a libertarian non-governmental organization, the 1841 Foundation introduced this index as a counterpoint to the ‘tax haven’ narrative, which highlights countries offering significant tax advantages. Their ‘Tax Hell Index’ aims to spotlight countries that impose an excessive tax burden on their citizens and businesses.

The 2023 Tax Hell Index and Colombia’s economic freedom

Drawing on 2021 data from the International Monetary Fund and the World Bank, the 2023 Tax Hell Index employs both quantitative and qualitative criteria to assess a country’s favorability to taxpayers. The quantitative criteria include fiscal pressure, debt pressure, inflationary tax pressure, and potential fiscal pressure — the latter being the difference between public spending and revenue as a percentage of GDP. The qualitative criteria encompass government accountability, rule of law, regulatory quality, political stability, government effectiveness, and corruption levels.

Out of 82 countries studied, Colombia was ranked as the 26^th least favorable country for taxpayers, with the Tax Hell Index categorizing it as a ‘Risky Tax Hell’. Compared to 2022, Colombia’s score declined by 0.4 points, moving from 7.2 to 7.6. Despite this, Colombia remains closer to ‘Normal’ countries, such as Croatia and Peru, which both scored 6.8, than to ‘Tax Hells’ like Haiti and El Salvador, each with a score of 8.8.

According to the 2023 Tax Hell Index, Belarus and Venezuela were identified as the worst countries for taxpayers, with both scoring 10.8. On the other hand, Ireland remains the most taxpayer-friendly country, with a score of 2.4.

This is not the first instance where Colombia has been pointed out for its increasing regulatory measures, fiscal regime, and corruption levels. The Heritage Foundation, a conservative think tank, noted a decline in economic freedom in Colombia in its 2024 Economic Freedom Index. The report identified collusion of power, corruption, fiscal regime, regulations, and informality as the main challenges confronting the Colombian economy.