Law on tax incentives for the sugarcane industry

On December 2, 2019, Law 2005 was issued through which "incentives are generated for the quality, promotion of consumption and commercialization of panela, virgin honeys and their derivatives, as well as the conversion and formalization of mills in Colombia". The purpose of this regulation is to "generate incentives to increase the demand for panela and virgin honeys", as well as "diversify the production and marketing of their derivatives".

To comply with the above, the aforementioned law indicates that small, medium and large companies of mass consumption products that purchase products marked with the "trapiche de trapiche de economía campesina" seal (seal granted by the Ministry of Agriculture), exclusively to those products where the panela or virgin honeys come from at least 50% of panel mills of peasant economy), whose main ingredient or sweetener is panela or virgin honeys, will be entitled to a tax discount equivalent to 100% of the income tax associated to the profits from the sales of such products.

The regulation indicates that, to be eligible for the discount, small and medium companies must be under the simple taxation regime and that the discount will be applicable from the date on which the mass consumption product based on panela or virgin honeys begins to be purchased and will have a duration of seven (7) years from the moment the beneficiary begins to receive it. Once this period has expired, the beneficiary may continue to benefit for five (5) additional years if "at least 50% of the savings are invested in the creation of new jobs (...)".

Likewise, the regulation creates a tax discount for the promotion of the commercialization and exportation of panela from peasant economy mills, consisting in that the commercializes of panela, virgin honeys or products marked with the seal of supplier of peasant economy mills, whose main ingredient is panela or virgin honeys, whose promotion emphasizes such characteristic, will be entitled to a tax discount equivalent to 20% of the income tax associated to the commercialization or exportation of these products. Such discount will be applicable from the date from which the commercialization and export of panela or virgin honeys begins and will have a duration of three (3) years from the date the benefit begins to be received.

This regulation is a clear example of how to encourage an economic sector through the granting of tax benefits, which, in this case, are substantial.

However, perhaps due to ignorance or lack of coordination these tax discounts granted by the incentive law to the “panelero” sector may have disappeared from the legal system because Article 96 of Law 2010 of 2019 (Economic Growth Law, issued 25 days after the law was submitted for analysis) established the elimination, as of taxable year 2020, of:

"All tax discounts applicable to income tax that are different from those contained in Articles 115, 254, 255, 256, 256-1, 256-1, 257, 257-1 and 258-1 of the Tax Statute, Article 104 of Law 788 of 2002 and those provided in this law for the ZOMACs".

None of the referred articles incorporates the discounts established in the Law of Tax Incentives to the sugarcane industry.

In view of the apparent derogation of this recently created tax benefit, there is no alternative but to consult with the tax authority if, since it is a special rule, such derogation does not apply to it. In other words, the tax authority will have to carry out a hermeneutic analysis to determine whether, considering the provisions of Law 153 of 1887, the subsequent general law must prevail over the previous special law, or whether the latter, being special, survives a derogation made in the abstract.