Proposed Tax Reform Would Kill Subway in Colombia
Mateo Lisocki, development agent for Subway in Colombia, warned that if franchises are subject to consumption tax, instead of the value added tax (VAT) under which they currently operate, about 200 Subway locations in Colombia would not break even and would be forced to close.
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According to Lisocki, the VAT system allows the Subway restaurants in Colombia to deduct their monthly VAT payments each month from their total monthly tax bill. With the consumption tax, the VAT that they pay would not eligible for deduction from taxes paid to the National Tax and Customs Office (DIAN), and would have to be taken into account as an expense.
According to the calculations of Subway, the consumption tax would increase the operating costs of each of its points of sale by approximately 13% and the Ebidta of these points would fall nearly five points. This would lead to 200 of the 383 restaurants in Colombia losing their profitability, and having to close their doors.
Lisocki also confirmed that given this proposed change in the tax code, they would also have to halt the opening of 60 new locations that are planned to open per year across Colombia. This would implicate a loss of 700 jobs per year for the economy.
Also, some franchises have expressed their concern about the tax on sugary drinks and have said that this could seriously hurt their profitability. However, there is already a consensus between the sponsors of the bill and their allies in Congress to eliminate this provision, although it will also appear in the initial text which Congress will soon debate.
Finally, the Subway representative noted that Subway was not protesting the percentage increase in VAT from 16% to 19% since, according to him, he understands the government need to increase tax revenues.
Source: Revista Dinero