Tax depreciation for those who are not required to keep accounting records

By means of an order dated April 18, 2017, signed by Justice Alejandro Linares Cantillo, the Constitutional Court decided to admit the unconstitutionality lawsuit filed by tax lawyers and constitutional activists José Darío Zuluaga Calle, Mateo Gómez Arango and Carlos Mario Restrepo Pineda. This lawsuit, which is part of File D-11988, attacks the partial unconstitutionality of Article 77 of Law 1819 of 2016 (tax reform) which indicates that only those obliged to keep accounting records may deduct, in reasonable amounts, the depreciation caused by the wear and tear of goods used in business or income-producing activities.

The plaintiffs claim that such restriction violates, among others, article 363 of the Political Constitution - principle of equity on which tax law is based - as well as article 95 numeral 9 of the same body of law, which orders citizens to contribute to the financing of the expenses and investments of the State within the concepts of equity and justice. In the text of the claim, the plaintiffs deploy a complete and coherent argumentation tending to question the reasons why the legislator, in an abrupt and irrational manner, limited the benefit of depreciation only to those taxpayers obliged to keep accounting records. They also state that a large part of the Colombian business community is made up of individuals who carry out business activities that the same commercial law considers as non-commercial (such as cattle raising, agriculture, pig farming, poultry farming, fish farming, leasing of their own real estate and other jobs where the exploitation of real estate is a priority), which is why, in accordance with the law, they are not obliged to keep accounting records. Through several examples and tax simulations, the plaintiffs prove how limiting the benefit of depreciation to such businessmen generates an effective and unjustified distortion in their tax burdens, as compared to those of businessmen required to keep accounting records. They conclude their argument by demonstrating the transgression that the law makes of the principles of horizontal equity (when the legal system itself generates an unjustified distinction between taxpayers obliged and not obliged to keep accounting records) and vertical equity (by not measuring the taxpaying capacity of the same taxpayer in an ascending manner, "since the simple formalism of keeping or not keeping accounting records is not a reasonable criterion").

According to the explanatory memorandum of Law 1819 of 2016, the reasons that led the legislator to create this discrimination between taxpayers obliged and not obliged to keep accounting, where the only ones that could take the depreciation deduction were the first ones (even if they were both entrepreneurs and taxpayers), was to avoid excessive tax benefits, since they "distort the effective tax rates and generate horizontal inequity". Frankly, from the business point of view, it is hard to understand how it can be justified that an individual entrepreneur who leases his own real estate cannot fiscally take the depreciation on such real estate, while a legal entity entrepreneur, who is engaged in exactly the same business, can do so simply because he is obliged to keep accounting records.

The claim is clear and coherent and shows the evident violation of the rule against the principles of equity established in our Constitution. This is a great opportunity for the tax study centers, professional associations, universities and guilds that were invited to render their opinion on the same, to do so.

Likewise, this is a call to the community of tax professionals (lawyers and accountants) to intervene by contributing to the same, so that the tax law may be purified and serve as a tool of equity for the taxpayers.