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Colombia’s Tax Chief Is the Smuggler’s Best Friend

By: Javier Garay - @Crittiko - Aug 3, 2015, 4:14 pm

EspañolA month ago, the Colombian government approved the passage of the so-called Anti-Smuggling Law. Almost immediately, small-business owners across the country took to the streets to protest against it. Santiago Rojas, however, the head of the National Taxes and Customs Directorate (DIAN), claimed smuggling rings were behind the demonstrations.

In Colombia, it’s become second nature for officials to say these things and attempt to discredit protesters instead of engaging with them. Without ever addressing the issue, all they need to do to tarnish the cause is to suggest the demonstrations are somehow linked to some vaguely defined armed group or criminal organization.

It’s pure ad hominem fallacy, but with an aggravating factor: believing that obscure, unnamed groups are behind legitimate citizen protests dilutes personal responsibility.

As the head of the government office responsible for collecting taxes and tariffs, it’s in Rojas’s best interest to minimize the influence of the protesters. It is DIAN’s job to persuade the public that the Colombian state is allocating the money it takes from them to worthwhile projects. And when it fails to do so, it must force the public to fork over the cash anyway.

Unfortunately, the state has succeeded in persuading many Colombians. Most believe taxes are the best or even the only way for society to solve its problems or express solidarity. They ignore the importance of social organizations, altruism, and initiatives beyond the political sphere, which tend to lead to corruption and the undue sway of special interests.

Those who buy into the state’s logic argue tariffs are important, because they provide a source of revenue for the government as well as protection for some economic sectors. What they usually forget to explain is why the government should spend any amount of money at the expense of other people’s hard work, or why some industries should be granted privileges over others.

This is not the only thing Rojas fails to account for either. The head of the DIAN also avoid explaining what driving the smuggling business in the first place.

In short, contraband exists where there are trade barriers. Consumer demand for foreign goods creates incentives for some businessmen to fill the void, even though it’s an illegal and violent activity.

The World Bank’s Ease of Doing Business Index demonstrates this clearly. Colombia is doing relatively well when it comes to the number of bureaucratic steps and the amount of days it takes to import and export goods. The country ranks above the Latin American average, but below the OECD countries.

Colombia, however, performs poorly in the category of freight cost per container. While the Latin American average for exports is US$1,299, and $1,080 for OECD countries, it costs $2,355 per container in Colombia. The situation is similar for imports: $1,691 and $1,100 versus $2,470, respectively. The high barriers to trade in Colombia are as evident as the pervading anti-import bias.

The Global Competitiveness Report 2014-15 points to the same trend. When it comes to trade barriers, Colombia ranks 119 out of 144 countries. On tariffs in relation to total tax revenue, the country stands at position 82. When taking into account the burden of customs procedures, Colombia ranks 91.

Trade barriers and a high tax burden are the prefect mix to harm investment and job creation. The index ranks Colombia 127 out of 144 for tax environments that promote investment, while the effects of taxation on incentives to work place the country at position 122.Furthermore, the country shows a moderately concentrated market, ranking 101 in the category that measures the extent of existing competition.

This take us to the sixth pillar of the competitiveness report, efficiency in the market for goods, where Colombia stands at position 109 — the second worst position after the pillar of institutions (111).

Considering the current situation, instead of punishing protesters or manufacturing conspiracy theories, Rojas should avoid persecuting people who simply serve consumers. Smugglers will continue to exist because people will continue buying. Persecution will only beget more violence.

Instead, the DIAN should focus on simplifying tariffs to help Colombians trade with the rest of the world.

Translated by Adam Dubove.

Javier Garay Javier Garay

Javier Garay is a professor at the Externado University of Colombia. He has written two books on international issues, such as development, after his doctoral dissertation focused on the same topic. Follow him on Twitter @crittiko and through his personal blog, Crittiko.