In brief
Colombia enters the 2026 election cycle amid significant fiscal pressures and political uncertainty. The first round of the presidential election will take place on 31 May 2026, with a likely runoff on 21 June 2026, and the new administration will assume office on 7 August 2026. This transition unfolds while the government has invoked the fiscal rule’s escape clause, suspending it through 2027 and revising the 2025 deficit target to 7.1% of Gross Domestic Product (GDP).
Against this backdrop of widening deficits, inflexible public spending and stalled tax initiatives in Congress, the next administration, regardless of political orientation, is expected to pursue an ambitious tax reform early in its mandate. Substantial changes may begin to take shape between late 2026 and 2027, likely aligning with the 2027 budget cycle, as fiscal consolidation becomes unavoidable.
In more detail
The country’s fiscal environment has weakened ahead of the elections. Revenues remain below expectations, and expenditure rigidity limits the government’s capacity to adjust. The Ministry of Finance activated the fiscal rule’s escape clause through 2027, projecting a deficit of up to 7.1% of GDP for 2025. Institutions such as the International Monetary Fund (IMF) and Organization for Economic Co-operation and Development (OECD) have noted rising debt levels, higher sovereign spreads and the need for a credible fiscal adjustment plan.
Ratings agencies have responded to these developments. In 2025, Fitch revised Colombia’s sovereign outlook to negative and downgraded the rating to BB, signaling concerns that post election measures may fall short of reversing current trends. Analysts warn that, without decisive action, the country’s credit position may continue to weaken.
Political dynamics have also shaped the tax landscape. Reform proposals introduced between 2024 and 2026, affecting high income individuals, sectoral surtaxes, withholding on non resident dividends, VAT expansion and the removal of exemptions, encountered strong congressional resistance and advanced little. Analysts describe a fragmented legislative environment resistant to significant revenue raising initiatives, leaving the next administration with most of the responsibility for fiscal consolidation.
Draft bills and legislative decrees debated in 2025 and 2026, including proposals on permanent surtaxes for financial institutions and oil and gas sector, expanded VAT and Net Worth Tax coverage and the increase of other taxes (taxes on gasoline, liquor, cigarettes, plastic of one single use, among others), provide insight into areas likely to reappear in future discussions.
Judicial developments have further contributed to fiscal complexity. In 2023 and 2024, the Constitutional Court overturned the prohibition on deducting royalties paid by extractive-sector companies, reinstating deductibility and reducing projected tax revenue. Attempts by the government to delay or modify this ruling were unsuccessful, reinforcing its immediate fiscal impact and signaling that aspects of the taxation of natural resource industries may be subject to renewed debate.
Looking ahead, a comprehensive tax reform is expected to take center stage early in the next administration. Policymakers will likely focus on expanding tax bases, reviewing and limiting exemptions, adjusting sector specific surtaxes and incorporating international standards, particularly OECD recommendations, into domestic rules. This may include updates to permanent establishment thresholds, digital taxation and the treatment of gains derived from natural-resource activities.
Overall, Colombia is expected to enter a phase of significant fiscal and tax restructuring following the 2026 elections. A major tax package will likely be introduced shortly after the new administration takes office in August, potentially aligned with the 2027 budget cycle. To remain well positioned, it is advisable that companies and individuals begin assessing their current tax situation and monitoring potential adjustments to tax bases and compliance rules as the broader fiscal landscape evolves.