By Juan Miguel Hernández Bonilla, EL PAÍS, July 18, 2025
(Translated by Eunice Gibson, CSN Volunteer Translator)
In Colombia extreme wealth and social inequality are two faces of the same coin. Many of the richest people in the country have evaded and avoided taxes for decades. Their wealth has increased significantly while the tax rates they pay the government are stagnant or even reduced. That paradox, documented in various academic studies, intensifies inequality, undermines the development of the country, and affects the daily lives of the millions who remain in poverty. According to figures from the World Inequality Database, 40% of total household wealth in Colombia is concentrated in the richest 1% of the population, while the poorest 50% own only 2% of that. This concentration is greater than in Latin America, one of the world’s most unequal regions.
According to the National Administrative Department of Statistics (DANE), 28% of Colombians, nearly 14.4 million people, suffer food insecurity. Colombia’s tax system, which ought to reduce divides like this, has a weak capability for redistribution.
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The very rich pay less than the poor?
Oxfam’s most recent report on inequality, published in January 2025, reveals that Colombian multimillionaires pay proportionally fewer taxes than the poorest people.
A person belonging to the richest 1% paid an average of 17 cents in taxes for every dollar of income until 2021. Meanwhile a person in the lowest 50% of income paid 21.1 cents in taxes for every dollar of income. “That disproves the myth that poor people and the middle class don’t pay taxes, and it shows that the opposite is true,” concludes the Oxfam report.
This contradiction takes place for two main reasons. The first is that the country’s tax structure depends largely on taxes on consumption, like the Value Added Tax (IVA), which are profoundly regressive because every citizen, regardless of their income level, pay the same value. In contrast, little tax revenue is raised by direct taxes on individual income or property, key instruments for progressive taxation.
In 2024, 70 trillion pesos (roughly USD $17,470,000,000 at current exchange rates) were collected through IVA, nearly 30% of total collections, while the individual income tax collected 22 trillion pesos (roughly USD $5,490,000,000 at current exchange rates), and the property tax produced 1.4 trillion pesos (roughly USD $349,000,000 at current exchange rates).
The second reason is that the very rich use sophisticated strategies to pay less in taxes or no taxes at all. They elude—that means using loopholes to minimize their total tax taxes due—and they evade, meaning they deliberately hide certain activities, and they benefit from laws that provide them with ample exemptions and deductions.
The Commission of Experts on Tax Benefits, put together by former President Iván Duque’s administration in 2022, reached conclusions similar to the ones in the Oxfam report. “The regressive tax exemptions for the individual income tax frequently result in the richest Colombians paying less in taxes than their poorer compatriots,” states the Experts’ document. According to this report the super-rich are able to pay less in taxes than taxpayers who just have high incomes. A member of the 1% with more property paid less in taxes in proportion to their income than others who are not as rich.
Luis Carlos Reyes, the former Director of the National Directorate of Taxes and Customs (DIAN), and former Minister of Commerce, Industry, and Tourism, explains in an interview with EL PAÍS that tax evasion in Colombia every year represents 8% of Gross Domestic Product (GDP). In 2024, for example, GDP was 1,706 trillion pesos (roughly USD $426,000,000,000 at current exchange rates). Because of that, this country lost, or failed to collect, approximately 136 trillion pesos (roughly USD $33,941,000,000 at current exchange rates) in unpaid taxes. “That’s an awful lot,” says Reyes. “No country has zero tax evasion, but Colombia’s tax evasion is very high. If we could improve collection, and if evasion were to be at collection levels like those of the countries in the Organization for Economic Co-operation and Development (OCDE), around two points of GDP, we could have those six extra points for eventual collection, and that would create or strengthen social programs that would benefit the poorer people.”
The high levels of tax evasion are even more serious now, when the Gustavo Petro administration, the first leftist administration in the modern history of Colombia, decided to break the fiscal rule because revenues were insufficient. In the next session of Congress, which begins July 20, the President will call for an ambitious tax reform program. It will try to collect nearly 20 trillion pesos (about 5 million dollars). The current political reality and the lack of legislative majorities make this goal nearly impossible to achieve. The amount of annual evasion more or less equals six tax reforms.
Who is evading taxes?
According to a recent DIAN report on tax normalization—a mechanism that allows rectifying the fiscal situation of tax evaders that have omitted assets or included nonexistent liabilities on their tax return—the majority of those who admitted evading taxes in recent decades are part of the richest population in the country. The people who make use of these voluntary mechanisms to regularize their assets with a special fee admit that they didn’t include them on their return before, because they wanted to avoid paying the appropriate tax. “The richer they are, the more probable it is that they have normalized, meaning they have hidden information from the tax agency about their assets and liabilities,” states the document. Furthermore, the investigation shows that the richer the individual taxpayer was, the more money they had hidden. “97% of the people participating in normalization in 2019 belonged to the 5% of adults with the greatest wealth (liquid assets) in that year.” The .5% richest people in the country regularized 91% of all the money reported by individual taxpayers in the normalizations in 2019 and 2020.
The situation is more serious if we use the microscope to examine the top .01% of the richest people in Colombia. The study by researchers Juliana Londoño Vélez and Javier Ávila points out that in the tax normalizations in 2015, 2016, and 2017, during the administration of Juan Manuel Santos, 40% of these super-rich, that’s 2 out of every 5, admitted having evaded taxes and made use of that mechanism. Even so, in the subsequent normalizations in 2019 and 2020, nearly 20% of that same group also admitted having evaded taxes. In fact, the DIAN report reveals that the probability of having normalized “if they’re part of the 01.% is 96% higher than the probability of the average tax filer.
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There are 3,700 people in the group of 0.1% with the most money, owning property worth more than 9,800 million pesos (roughly USD $2,450,000 at current exchange rates). Nearly 70% of this group are men, and 30 are women, according to another DIAN report, which also reveals that most of their income does not come from work. In an average year, these people receive gross total income of 4,050 million pesos (roughly USD $1,011,000 at current exchange rates) divided as follows: income from capital, dividends, and/or interest of 1,064 million pesos (roughly USD $265,535 at current exchange rates); non-wage income of 1,775,000,000 pesos (roughly USD $443,000 at current exchange rates); wage income of 329,000,000 pesos (roughly USD $82,000 at current exchange rates); occasional earnings of 848,000,000 pesos (roughly USD $212,000 at current exchange rates); and pension of 33 million pesos (roughly USD $8,200 at current exchange rates).
9,800 million pesos is the lowest limit to belong to this group, but according to the last report by FORBES, the five richest men in the country, including business owners Jaime Gilinsky and David Vélez have fortunes up to 40 trillion (roughly ten billion US dollars at current exchange rates).
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Luis Carlos Reyes, who before he came to the DIAN was the Director of the Fiscal Observatory at Javeriana University, explains that effectively it’s the super-rich who elude and evade taxes. Reyes says very directly that you can divide the productive society into four segments: the first group of 50% with the least income: informal workers that earn less than the minimum wage, and don’t have to pay income tax. A second group with 49% of the people mostly have formal employment and earn a salary. They carry out their obligations; they pay income tax, IVA, and their employer deducts their tax obligations automatically, so they really don’t have much opportunity to evade taxes. “They don’t have any use for an account in the Caiman Islands.”
The third group is the richest 1%, where there are also many with high salaries, like company managers or directors of multinationals who pay their taxes as they should. There remains a tiny group of the super-rich: “There you find the greatest percentage of evasion.” Reyes defines them as people who file their tax return, pay their IVA, apparently complying with the tax laws, but in reality, they are hiding a significant portion of their income and their wealth. “They don’t pay what they ought to pay.”
How do the rich evade paying their taxes?
The DIAN report on tax normalizations explains how multimillionaire tax evaders hide their wealth in foreign countries. In 2019, nearly 90% of the money not reported by people who belong to the richest .01% was related to assets outside the country. “Half the money on which taxes were not paid at first and was reported in a normalization process in 2019 by an individual taxpayer(3.3 trillion out of 6.8 trillion)(roughly USD $826,000,000 out of $1,702,000,000 at current exchange rates) were assets that the .01% richest taxpayers held in foreign countries,” according to the report.
Juliana Londoño, Professor of Economics at the University of California Los Angeles, and a well-known expert on tax evasion and inequality, explains that the super-rich hide a good part of their money in tax havens. “The use of highly complex structures such as fiduciaries or enterprises in foreign countries, and particularly in Panama, is habitual for the richest Colombians,” says Londoño in an interview with EL PAÍS. “The tax secret that existed among countries up to not long ago allowed the richest to easily elude and evade a great many taxes in tax havens.”
According to her research, the richest tax evaders hide a third of their wealth in foreign countries and that is the main way to evade taxes on wealth. “Tax evasion in foreign countries represents more than 4/5 of the tax evasion detected.”
The research by Professor Londoño shows that Panama was an attractive destination for the richest Colombians to hide their assets and avoid paying taxes. “There isn’t any doubt: the use and abuse of offshore structures in tax havens has been the preferred vehicle for the richest Colombians to hide their fortunes and diminish their tax bllls,” she writes. She also found that it was 24 times more probable to have been a client of Mossack Fonseca, one of the five largest audit firms in the world, specializing in offshore financial services, if they belong to the .01% richest than if they belong to the 5% richest in the country.
However, thanks to agreements among countries on automatic exchange of financial information for fiscal purposes, for several years now the DIAN has been able to learn the value of assets that the richest taxpayers have in foreign countries. These agreements are intended to combat tax evasion by requiring financial institutions to report information on their clients’ accounts to tax authorities.
In 2021, the agreements revealed to the DIAN that there were 42.5 trillion pesos (roughly USD $10,630,000,000 at current exchange rates) that had not been reported. An Oxfam report at the end of 2024, entitled “Tax Havens, a Pending Challenge for Colombia”, explains that in the last decade, one of every three dollars that enters or leaves an investment to or from Colombia has passed through a tax haven.
One of the most frequent mechanisms used by the richest taxpayers to evade taxes is to put together family businesses and deduct personal spending as business expenses and reduce the tax bill that way. Juliana Londoño explains that, although in Colombia there are not yet any studies that show the recurrence of this strategy, it is definitely a formula documented in other parts of the world. Luis Carlos Reyes notes that one strategy used by the very rich is having a family business in a country with low income taxes that furnishes fictitious services to the real business in Colombia. Those services are reported as costs that diminish the utilities of the business in Colombia and they become utilities in the other country that has low income taxes. “That’s an example of the many concepts that exist to reduce paying income taxes.”
The super-rich use different strategies to under-report their wealth in their tax returns for the purpose of reducing their taxes. Reyes says that on many occasions, the value reported is much different, much lower, than the real value of the assets.
In another study, Juliana Londoño and Javier Ávila analyzed the variations seen in taxing wealth in Colombia in recent decades. They demonstrated ways in which the very rich report that their property’s value is just below the limit for not having to pay the particular tax, or to pay a smaller amount. “We found very strong evidence that the taxpayers promptly reduce the amount of wealth that they report in response to the implementation of the tax on wealth. Those effects don’t disappear when the tax is eliminated. On the contrary, they last for years.” Specifically, Londoño explains, what many of the very rich do is to report incorrectly the elements that the authorities are unable to verify “so as to inflate the amount of debt or underestimate corporate shares that are not reported by third parties.” In addition, according to the research, “the wealthiest taxpayers respond to tax increases by hiding stocks in entities that are hard to track.”
In fact, a common form of reducing the amount of taxes due by the richest people is the use of complex legal structures like trusteeships or companies that allow them to manage their wealth without it being directly under their name. Often they can combine several of such mechanisms. For example, they might have their money in a trusteeship in Panama in order to report ownership of less property than they really owned.
A progressive tax system that could reduce inequality
Tax evasion by the very rich is not something that only happens in Colombia. Various studies have shown that multimillionaires all over the world have very low effective tax rates. The French economist Gabriel Zucman, a professor at Berkeley and at the Paris School of Economics, explains that, instead of being progressive, contemporaneous tax systems aren’t able to encumber very wealthy people very effectively. “When you’re very rich, it’s really easy to elude the income tax. We saw that with the revelations in Pro Publica about taxes paid by Jeff Bezos, Elon Musk . . .,” said Zucman in a recent interview with this paper. “For the super-rich, it’s easy to structure your wealth so it doesn’t generate much taxable income. That’s why the income tax is failing. It’s probably one of the biggest problems of our tax systems, and we have to take this on,” he insisted. For example, stockholders can avoid having taxable income if they decide that the company won’t distribute dividends.
His proposal is to change the direction of worldwide tax systems toward some that are more progressive, such as a minimum tax on the wealthiest that is not related to income but rather to ownership of property. “Our proposal is to place a minimum tax equivalent to 2% of their wealth on the billionaires every year. That’s in line with what’s been done with the tax levy on the multinationals. There’s an international agreement on a minimum global tax of 15% that’s applied in the EU since January 1 of this year. The next step is to do the same thing with very rich people.
Even though Colombian law already has a tax on ownership of properties of very high value, with progressive marginal rates, similar to what Zucman is proposing, in reality there are still big challenges in combatting the strategies used by the very rich to avoid paying this tax. Researcher Juliana Londoño states that the fact that the extremely rich are not paying the taxes that are due means that the tax system, the most important tool the government has to redistribute wealth, is not achieving its goal of reducing inequality.