4×1,000 Exemption Extension Faces Implementation Hurdles

The extension of the 4×1,000 tax exemption to all savings accounts, mandated by Law 2277 of 2022, is facing significant delays. The law, which aimed to streamline the exemption process across financial entities, cooperatives, employee funds, adn digital banks, was slated to take effect on December 13, but implementation is proving complex.

Technological Challenges and Regulatory ambiguity

Financial institutions are grappling with the technological intricacies of coordinating systems to track individual transaction limits across multiple accounts. Currently, individuals must designate a single account for the 4×1,000 exemption. The new law intends to apply the exemption across all accounts held by an individual until they reach a combined transaction limit of 17.4 million pesos.

A source within the financial sector highlighted these challenges, stating, “It is indeed a purely technological issue that is not easy to develop, in addition, the norm is not very clear in pointing out what the entity will be responsible for making that liquidation to report it to the DIAN (National Tax and Customs Directorate).There is little clarity on certain issues and some empty“.

This ambiguity raises concerns about which entity bears the responsibility for accurately calculating and reporting transactions to the DIAN (National Tax and Customs Directorate), leading to further delays.

Impact on Financial Institutions and Digital Wallets

Colombia boasts a vast financial landscape with over 88.2 million savings accounts, predominantly managed by the 29 banks operating in the country. The remaining accounts are distributed among financial companies and cooperatives,all under the supervision of the Financial Superintendence.

Digital wallets, including popular platforms like Nequi, Daviplata, and Dale!, are also included in the 4×1,000 exemption, provided that total transactions across all accounts do not exceed the established limit.

Moreover, the measure extends to 172 savings and credit cooperatives nationwide, as well as numerous employee funds. Miller García Perdomo, President of the National Employee Funds Association (ANALFE), representing 82% of existing funds, stated that his organization is prepared to implement Law 2277, leveraging Transunion’s technological solutions. Though, García Perdomo also emphasized the critical need for extensive participation across all system actors, noting, “if all the actors of the system are not, as it cannot be implemented and in that we are“.

Seeking Solutions and DIAN’s Role

Faced with implementation hurdles, stakeholders have engaged with DIAN officials, proposing that the entity assume responsibility for the platform managing the exemption. However,this proposal was rejected,with DIAN maintaining that the responsibility lies with private entities.

The Rationale Behind the Measure

Ángel Custodio cabrera, a specialist in Tax Law and Finance and former Labor Minister, explained the underlying rationale, noting that the measure aims to incentivize the use of the financial system for transactions in Colombia. He told Portafolio, “What is called Tax, Banking of Costs and Deductions must be normalized“.

This normalization, Cabrera argues, will encourage broader participation in the formal financial system, stating that “Everyone reports their transactions and give it that possibility of having that exemption from financial tax every month”.

Cabrera anticipates a positive impact on the country’s finances,suggesting that the exemption will encourage individuals to conduct transactions legally through the financial system,thereby enhancing tax control.

Despite the promise,the success of the 4×1,000 exemption hinges on overcoming technological challenges,clarifying regulatory ambiguities,and ensuring comprehensive participation from all stakeholders.

Actionable Takeaways

• Monitor Implementation Progress: Stay informed about updates regarding the 4×1,000 exemption rollout through official channels and reputable news sources.
• Consolidate Financial Data: Keep track of your transactions across all accounts to ensure you remain within the exemption limit.
• Engage with Financial Institutions: Contact your bank or financial institution to understand their specific implementation timeline and requirements.

While the extended 4×1,000 exemption promises to promote financial inclusion and streamline transactions, its realization depends on collaborative efforts and technological advancements. Stay informed and proactive to leverage this potential benefit effectively.

How will the 4×1,000 exemption extension impact the adoption of digital wallets in Colombia?

Interview: 4×1,000 Exemption Extension Implementation Challenges

The extension of the 4×1,000 tax exemption, aimed at promoting financial inclusion, faces significant hurdles in its implementation. Archyde News sat down with Miller García Perdomo, President of the National Employee Funds association (ANALFE), to discuss the challenges and potential impact. Mr. García Perdomo oversees an association that represents 82% of existing employee funds in Colombia, offering unique insights into this complex issue.

Understanding the 4×1,000 Exemption Extension

Archyde News: Mr. García Perdomo, thank you for joining us. Could you briefly explain the goal behind the 4×1,000 tax exemption extension and why it’s intended to benefit Colombian citizens?

Miller García Perdomo: Certainly. The 4×1,000 exemption, as mandated by Law 2277 of 2022, aims to streamline the tax exemption process across various financial entities, including banks, cooperatives, employee funds, and digital banks. The core idea is to encourage greater participation in the formal financial system by allowing individuals to have the exemption applied across all their accounts up to a combined transaction limit,instead of being restricted to a single designated account.

Technological and Logistical Roadblocks

Archyde News: The news highlights technological challenges and regulatory ambiguity. What specific hurdles are employee funds facing in implementing this extension?

Miller García Perdomo: The primary challenge is technological. Currently, systems within various financial institutions aren’t readily designed to communicate and track individual transaction limits across multiple accounts held by a single person. To accurately manage the exemption, we need seamless data sharing.Then there’s the issue of, according to the official norm, who is responsible for making that liquidation to report it to the DIAN. We’re ready to implement it using Transunion’s technological solution, but its use hinges on integrated participation.

The Role of Digital Wallets and Financial Institutions

archyde News: digital wallets like Nequi and Daviplata are also included in the exemption. Does this expanded scope complicate the technological challenges even further?

Miller García Perdomo: Absolutely. Including digital wallets adds another layer of complexity as it introduces more players and systems that need to be integrated. It is indeed a fact that the financial landscape is growing.

DIAN’s Involvement and Potential Solutions

Archyde News: There was a proposal for DIAN to manage the platform for the exemption, which was rejected. In your opinion, what’s the best way forward to resolve the ambiguity and ensure smooth implementation?

Miller garcía Perdomo: The solution lies in collaboration. while DIAN has chosen not to take on the platform management, they can—and should—play a vital role in providing clear, unambiguous guidelines and protocols.A collaborative agreement is key to the matter. We need DIAN to establish unified standards for data reporting and reconciliation, and financial institutions, including employee funds like ours, need to work together to develop a shared technological framework that meets those standards.

Impact on Financial Transactions and Citizen Behavior

Archyde News: Ángel Custodio Cabrera suggests this measure aims to incentivize using the formal financial system.Do you believe this exemption will substantially alter how Colombians conduct transactions?

Miller García Perdomo: I think it has the potential to do just that. By reducing the transactional cost, we make it more appealing for individuals to carry out their transaction through formal channels. Though, it its viability will, definitively, rely on successfully navigating the implementation to effectively apply this benefit acroos all stakeholders.

Final Thoughts and Open Questions

Archyde News: Ultimately, what are your key expectations for the coming months regarding the 4×1,000 exemption extension?

Miller García Perdomo: My hope is that we see accelerated collaboration, clearer regulatory guidance, and swift technological advancements. The sooner we streamline the implementation, the sooner we can realise the intended benefits of increased financial inclusion and more formal transaction methods. This hinges on extensive participation across al system actors,and in that we are.

Archyde News: Thank you for spending time with us, Mr. García Perdomo.