Congress Rejects Colombian Government’s Tax Reform Plan

The Congress of Colombia rejected the Petro government’s proposed tax reform — known as the Financing Law — whose approval was considered key by the executive to close the 2026 budget accounts. After months of intense debates in committees, and despite adjustments introduced in the text aimed at easing criticism, the initiative failed to secure the necessary support.

The rejection jeopardizes plans to collect nearly 16 trillion pesos (approximately US$4.2 billion), raising concerns about the fiscal deficit and the funding of social and investment programs.

From the outset, the government insisted that the Financing Law was essential to meet the goals of the General Budget of the Nation, estimated at 546.9 trillion pesos (approximately US$143.9 billion), and to avoid a fiscal imbalance of significant proportions. However, many lawmakers argued that the reform placed too heavy a burden on citizens’ pockets, especially those least able to absorb tax increases, and warned that the bill did not amount to a structural reform of public spending but rather an urgent revenue-raising strategy.

In the end, a vote in the Senate’s Fourth Committee — nine votes in favor versus four against — was enough to shelve the proposal definitively, since rejection in one of the economic committees is sufficient for its automatic demise. The situation forces the government to seek alternatives to avoid a significant gap in the 2026 budget.

Congress rejects Colombian government’s tax reform plan

The parliamentary process to advance the reform was tortuous. The bill had been introduced with a much higher initial revenue target, close to 26.3 trillion pesos (approximately US$6.92 billion). But as debates progressed, and in order to secure support, the government agreed to reduce it, setting a goal of raising about 16.3 trillion, a figure it considered sufficient to support the national budget.

Despite those adjustments, parliamentary opposition remained firm. Specifically, the Fourth Committee of the Senate decided to shelve the proposal, halting its progress even before it could be debated by the full Senate or the Chamber. Critical voices within Congress reproached that there had not been a serious discussion of the articles and questioned the collection mechanism, which included measures such as expanding VAT, increasing fuel taxes, and adjusting labor withholdings — elements that, they argued, would hurt the population’s purchasing power.

The rejection was not only technical or fiscal, but also political. Opposition lawmakers argued that the initiative represented a “desperate collection effort” rather than a real restructuring of the state, accusing the government of trying to solve a structural spending problem with new taxes. Some said that in a context of inflation, unemployment, and economic slowdown, it was not the right time to impose new tax burdens, especially on middle- and working-class sectors.

The truth is that it seemed difficult to pass such a controversial reform on the eve of an electoral year marked by sharp polarization between supporters and critics of the government.

Impact on fiscal accounts and governance in Colombia

With the withdrawal of the Financing Law, the government loses a key piece of its strategy for funding investments and social programs, leaving a gap that will be hard to fill. At the Ministry of Finance, officials already warn that without those extra resources, the fiscal deficit could widen — a risk that directly affects the credibility of public finances and investor confidence.

The scenario now open requires urgent alternatives. Some within the executive suggest that the path could be external debt or spending cuts, although these options entail costs and reductions that will likely affect the implementation of social policies.

Moreover, for sectors of the opposition, this setback represents a clear sign of the government’s political fatigue, revealing a disconnect between the executive’s aspirations and Congress’s willingness to support them. The tension between branches of power highlights the challenge of building consensus in a context of polarization, fiscal crisis, and urgent social needs.

Now the main question is whether the government will impose an economic emergency, something already described as “inconvenient” by the opposition since, they argue, the rejection of the fiscal reform may be a “political setback,” but does not constitute an emergency situation. In this regard, Congress representative Angelica Lozano warned that imposing an economic emergency “would violate the separation of powers and distort the Constitution,” as it would allow the government to legislate without democratic backing.

Related: Influencers Aspiring to Congress in Colombia 2026.