Since his campaign and throughout the Duque government, few policies have generated as much expectation as the so-called Orange Economy. Duque's promises ranged from an Orange Economy with a greater economic contribution to the country than mining GDP, to the idea of turning Colombia into a creative power in the region. However, in the Balance of Impacto TIC We point out that the reality of the Orange Economy was less than the expectation.
In general terms, despite incentives for income exemption for companies participating in orange industries, the contribution to the GDP of this economy remained stable around 3% during the 4 years of the Duque government. This disparity between promises and fulfilled goals generated strong criticism and doubts about its effectiveness in the future.
A look at the Petro reform
Article 235-2 of the tax statute, which exposes the “rent exemption as a tax incentive for Orange Economy companies. Income from the development of technological value-added industries and creative activities, for a term of 5 years., was repealed in its entirety in the reform presented by the new government.
This means that companies that are not within the exemption before June 30, 2022 must continue to pay taxes to the State normally. However, José Ignacio López, executive director of Economic Research at Corficolombiana, He explains that it is unlikely that these exemptions can ever be withdrawn before the established 5 years are up. “There is already a law that supported it, and in general the tax reforms are not contravened. Laws usually cannot be retroactive. explained the executive director.
According to Daniel Rojas, a leading member of Gustavo Petro's splicing committee, "The Orange Economy is a concept that we have been trying to understand for 4 years and we still do not understand." For the new government, the Orange Economy is ambiguous and difficult to understand and therefore is part of a group of 13 policies of the Duque government that will not continue.
It is clear that all the sectors included in the Orange Economy will begin to pay taxes in the simple regime once the agreed 5 years have elapsed. "From now on there will no longer be exemptions, so all these diverse categories will have to face tax rates equal to the general rate. There is still a long way to go to know where it will end up.", affirms López, from Corficolombiana.
Although the Orange Economy, as proposed by Duque, will cease to exist, It is important to consider that similar policies may be adopted by the Petro government under different regulatory frameworks.
The Orange Economy, like other Duque policies, was marked by contrasts. The technology sector, for example, was by far one of the fastest growing, with 7,8% in 2018 and 12,5% in 2020. Additionally, the labor market in the sector went from 170.000 employees to 190.000. Likewise, of the ventures benefiting from the income tax reduction, 59% are technology and software development.
However, while the technology sector has made significant gains, it is difficult to understand how much of this impact has been government policies and how much has been external factors, such as the state of the pandemic. Even so, broadly speaking, the Orange Economy in general was very far from meeting the ambitious goals of the Duque government.
Perhaps the most ambitious of these was the promise to bring the GDP of the Orange Economy from 3% to 5% in his 4 years of government. However, the GDP remained stable around 3%, even counting on a drop to 2,5% in 2020 as a result of the pandemic. Looking through a microscope, we again see that the digital media and software segment account for more than 60% share of the functional creations area.
Speaking of income, the Duque government promised that the Orange Economy would export close to 1.000 million dollars by 2022. Obviously, this figure is far from being fulfilled, and according to the figures of the last report of the Dane it barely exceeded $20 million in 2021.
Julio César Romero, chief economist at Corficolombiana, explains that the Orange Economy is a very broad concept, which includes both artistic expressions and items such as stationery or footwear. This lack of clarity – especially in tax matters – was largely one of the main reasons why the Petro government has proposed to repeal article 235-2.
Where is the entrepreneurship?
In terms of entrepreneurship the situation is confusing. So far, the Law 2069 of 2020, commonly known as the Entrepreneurship Law it has not figured significantly in the Petro government's plans. This means that, at the moment, there are no major changes in benefits to boost innovation that the Duque government established.
Although entrepreneurship and innovation were strong speeches of the past administration, the great pillars of Petro are in the environment, women, popular economy and democratization. Petro has not spoken specifically about entrepreneurship, but the truth is that proposals such as the change from an extractivist economy to a productive economy hint that entrepreneurship is included in the new government's plans.
In exact figures, Romero, from Corficolombiana, explains that the companies covered by the Orange Economy had a special regime of 9%, while the simple regime is 35%. In the Petro tax reform, this special regime is eliminated and a reduction cap of 3% is set, which means that in theory the exemptions could not fall below 32%.
"One of the activities that was growing the most in the second quarter of the year, with a rate above 30%, is entertainment, but it cannot be said if it is the result of tax rates or not," says Julio Cesar Romero. Although the true impact of these policies is yet to be seen, the truth is that there is widespread concern about the future of investment in the country.
“One of the important exemptions of the Duque government was that of investment”, says Romero, and this is precisely one of the points that is eliminated in Petro's tax reform. "Rather than being negative for a sector like the Orange Economy, what is striking about this reform is that it could end up discouraging investment in general", he affirms
"We are concerned about the effect on investment incentives, not only in the orange economy but in all areas."
José Ignacio López, Executive Director of Economic Research at Corficolombiana
In the same way, much of the educational discourse of the new government is focused on subjects such as mathematics, English, computer programming and digital literacy in general, as well as the expansion of connectivity in the country. At least from this point of view, the Petro government is focused on creating a much more robust knowledge base in the country, that in the long term will be favorable for many technology-based enterprises.
Perhaps one of the biggest challenges, however, will be in terms of regulating technological platforms, as well as the implementation of policies regarding Fintech and new technologies such as Artificial Intelligence and data privacy.
Main image: Presidency
