Good riddance to Colombia’s failed wealth tax

Daniel Raisbeck is an independent policy analyst

If you see a list of the OECD countries that have had a tax on net wealth, you will find that a) most countries realized wealth taxes were a costly mistake and repealed them long since, and b) only Norway, Spain, and Colombia did not, with certain Swiss cantons applying them at the local level. To which a valid, initial response would be to ask why on earth Colombia appears on an OECD list in the first place.

As I argued in 2018, Colombia, a middle-income country, had no business joining the OECD. To start, it revealed a desperate urge to keep up with the Joneses of the developed world, and stagnating continental Europe in particular (a model for the local, anti-American intelligentsia). More importantly, by then the likes of France and Germany were using the OECD to coerce up-and-coming competitors—i.e. Ireland— to raise their low corporate income tax rate to a collectively agreed minimum level, all through the vicious euphemism of “tax harmonisation.”

Since then, OECD membership has burdened Colombian businesses with several new layers of onerous, international reporting requirements. This on top of local regulations, which were unnecessarily bureaucratic to begin with. Plus, Colombian statists now claim—often and chirpily—that the country must raise its tax revenue heavily to match the OECD average of 34 per cent of GDP, even though the current level (22 per cent) is already higher than that of Ireland and Chile, both far richer countries. As it turns out, a high percentage of tax revenue to GDP is no prerequisite for development.

So, the only silver lining I see to being in the OECD is that it left Colombia in the small minority of countries with a wealth tax, but only because this reinforces the message that even most high-tax European states have steered clear of such a harmful levy.

Colombia introduced a wealth tax in 1935 but suspended in 1992, as the country, once so protectionist it was known as South America’s Tibet, timidly opened itself to global markets.

The current version of the wealth tax dates back to 2002, when former president Alvaro Uribe (2002-2010) re-introduced it via an emergency decree, claiming it was needed to pay for his security policy against the FARC guerrilla group (which was necessary and proved successful). Uribe, who should have looked for other sources of revenue for the military offensive (such as the full sale of the state-owned oil company), naturally claimed that the wealth tax was a temporary, one-off measure. Originally, it taxed net wealth starting at only ~ USD $65,000 at the exchange rate of the time at 1.2 per cent for both natural persons and legal entities.

The following year, however, Uribe’s government passed a law that taxed net wealth above ~

USD $1 million at 0.3 per cent through 2006. And in 2006, Uribe extended the wealth tax until 2010, raising the rate to 1.2 per cent, while keeping the same threshold and dual taxpayer structure.

Former president Juan Manuel Santos (2010-2018), Uribe’s successor and a friend of Tony Blair, kept the wealth tax during the whole of his presidency. In 2014, Santos also lowered the threshold, which, due to heavy peso devaluation, fell below USD $300,000 at the 2016 exchange rate. Santos also raised the top wealth tax rate to 1.5 per cent, although his government did phase it out for corporations.

Santos’s successor, Iván Duque (2018-2022) also maintained the wealth tax for individuals throughout his presidency—again on a temporary basis—while raising the threshold to ~ $1.5 million at the 2018 exchange rate and instituting a 1 per cent flat rate.

Once socialist former president Gustavo Petro took over in 2022, he made the wealth tax permanent, again lowered the threshold to ~ USD $650,000, and once more raised the top rate to 1.5 per cent of net assets. As Petro’s uncontrolled spending worsened Colombia’s chronic fiscal crisis in 2025, Congress rejected his new attempt to raise taxes. He responded with a series of executive decrees that dropped the wealth tax threshold to ~ USD $500,000, raised the top rate to an exorbitant 5 per cent, and made corporations once again liable to pay it.

Last April, however, the Constitutional Court ruled that the economic emergency decree that changed the rules on the personal wealth tax was unconstitutional, although it upheld the corporate wealth tax decree, which Petro had justified as a response to a flooding emergency.

The wealth tax’s permanency as a temporary measure, its absurdly low thresholds by global standards, and the varying justifications for imposing it in the last 25 years highlight its inadequacy. While relatively easy to collect and never likely to cause large-scale protests, the wealth tax made little difference in terms of total tax revenue. As Lisandro Junco, the head of the tax collecting agency under Duque, put it, the wealth tax has remained far behind the income tax, the value added tax and the consumption tax as a revenue source.

Then there is the issue of capital flight. Although the wealth tax has not been its only cause in Colombia, it is broadly assumed that it is a main component. Between 2010 and 2018, over 8,000 individuals renounced their Colombian citizenship and moved abroad. At the time, the press frequently cited excessive taxation as a main incentive for leaving the country. In 2025, at least 150 Colombians with a liquid net worth above USD $1 million left permanently according to an independent report. Again, the press speculated that many of these émigrés were escaping the wealth tax.

Whether or not these were tax exiles—practically none of them stated it publicly— a chance event did bring the wealth tax into the centre of the public debate. In 2024, a Bogota football club called (oddly enough) Millonarios offered a six-month, ~ USD $500,000 contract to star player Radamel Falcao, the country’s all-time leading international goal scorer.

Falcao, who had lived abroad for two decades, was not a Colombian tax resident at the time. He accepted the contract and was able to play at first without triggering tax resident status, which sets off when an individual spends 183 days in the country during a 365-day period.

The problem arose upon his contract’s renewal in early 2025. Since Colombia’s wealth tax applies to total global net worth, Falcao, by simply becoming a tax resident, would have owed the tax authorities far more in wealth taxes alone than what the team paid him in an annual salary. So, the talks between the player and the team broke down until sponsors stepped in and agreed to pay Falcao’s tax bill if he remained on the roster (which he did until mid-2025).

The Falcao saga showed plainly why wealth taxes are so harmful. First, they are counterproductive because they target those with the ability to live quite comfortably elsewhere. And, as local football fans found out, if you punish success, you merely will keep the successful away. Falcao’s ability to remain in Colombia was an exception; accomplished entrepreneurs and investors will not have recourse to corporate sponsors that will foot their wealth tax bill. They will choose to remain in jurisdictions with lower taxes and a greater respect for property rights.

Luckily, Colombia’s new president, Abelardo De la Espriella, appears to understand the nefarious nature of the wealth tax. During his inauguration speech on August 7, he said that he will get rid of it altogether. “We must stop punishing those who invest and build wealth in our country,” he said, thus unleashing a swell of optimism among the wealth creators that Colombia needs after more than a decade of per-capita-GDP stagnation.

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So, if De la Espriella keeps his promise, Colombia is about to become yet another country that has eliminated a wealth tax (a far better club to join than the OECD). It should serve as a lesson for Britain, California, and other tax-hungry jurisdictions: when it comes to taxing net wealth, the best alternative is not to do it at all.