In December 2020, the Colombian government adopted a series of measures to help different sectors affected by the coronavirus pandemic. These include the temporary elimination of the consumption tax and VAT for hotel and tourism services.
This measure meant a reduction from 8% to 0% of the consumption tax and from 19% to 0% of the VAT imposed on bars, restaurants, and hotels. However, this measure is no longer in effect as of January 1st of this year. The sector must begin to pay the total of these taxes, except for those commercial establishments under the simple regime in Colombia.
It is worth mentioning that the consumption tax is regulated by articles 512-1 and following of the tax statute. It is applied when consuming certain goods and services purchased or imported. Their characteristic is that they are products that are not considered indispensable or are not part of the basic national shopping basket and, therefore, are taxed in addition to VAT.
Depending on the line of business, this can be 4%, 8% (which is the case in the tourist and hotel sector), and 16%.
Impact of the pandemic on the food sector
Estimates by the Colombian Association of Gastronomic Industry (Acodres, in Spanish) place between 15% and 27% the likely price increase in the sector due to the return of the consumption tax, VAT, and inflation adjustment, which has been strongly affected by the rise in food prices.
Acodres estimates that there were some 90,000 restaurants and food service establishments before the pandemic in Colombia. About one-third of these – 27,000 – had to close their operations due to the economic crisis caused by the coronavirus pandemic.
The transitory tax exemption on the consumption tax and VAT allowed part of the gastronomic and tourism sector to circumvent the crisis and maintain operations. According to Acodres data, as of November 2021, the sector had achieved 86% sales compared to pre-pandemic figures.