Payroll Taxes in Colombia

56 Pages Posted: 10 Apr 2006

Date Written: November 2005


The central government of Colombia imposes a variety of taxes on the wages of workers. Some of these taxes are more properly viewed as "contributions" because individuals are entitled to benefits, the size of which varies with their contributions. Some may also be seen as a way to force people to save for old age or for insurance against health problems and occupational injury. Several have all the features of a tax, but nevertheless do not go into the general revenues of the government and instead are used to finance government and non-government provision of training programs and social services. In total, these various payroll taxes constitute a significant additional burden on labor, a burden that many believe has had a substantial range of effects on such things as employment and unemployment. Because of this additional burden, many also believe that these payroll taxes are escaped via evasion and avoidance in significant amounts, in part by switching labor from the formal to the informal sectors of the Colombian economy, by switching compensation from taxed to untaxed forms, and by outright evasion. This paper analyzes all of these payroll taxes, but focuses especially on what is called the parafiscales. The parafiscales are mandatory taxes established by law, which affect a certain and unique social or economic group and are used for the benefit of that same sector". These quasi-fiscal contributions are imposed on the payrolls of employers, and are used to finance the Instituto Colombiano de Bienestar Familiar (the Colombian Institute for Family Welfare, or ICBF), the Servico Nacional de Aprendizaje (the National Training Service, or SENA), and the Cajas de Compensación. In total, collections from these parafiscales are substantial, amounting to over 1 percent of Gross Domestic Product (GDP). The structural of the main payroll taxes are discussed, followed by an analysis of their likely effects and then by some policy recommendations.

Suggested Citation

Alm, James and Lopez-Castano, Hugo, Payroll Taxes in Colombia (November 2005). Andrew Young School of Policy Studies Research Paper Series No. 06-36, Available at SSRN: or

James Alm (Contact Author)

Tulane University ( email )

United States
5048628344 (Phone)

Hugo Lopez-Castano

Independent Author ( email )

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