Contributions to the Social Security System in Colombia are payable by the employer, employees, pensioners, and, in general, those who have payment capacity to do so. These contributions are made to the pensions, health and occupational risks subsystems and are not part of the National General Budget.<sup>6</sup>

## **_b) Indirect taxes:_**

The value-added tax (VAT) is one of the primary sources of the Colombian national government's collections. The VAT paid by residents represents 18.3 percent of government revenue in 2017. In the 2016 tax reform, the general VAT rate was raised from 16 percent to 19 percent. Additionally, a reduced tax of 5 percent and 0 percent was established for certain goods and services and goods were selected, mainly those considered basic goods, to be excluded from paying the tax.<sup>7</sup> The collection of excise taxes applied to alcoholic beverages and cigarettes amounted to 0.15 percent of GDP in 2017. The excise taxes applied to this set of goods are composed of two parts. The first part refers to a lump-sum tax and the second part to an ad-valorem tax.

# ii. Government spending

The total expenditure of the Colombian government amounted to 305,241 thousand of millions of pesos in 2017, which represents about 33 percent of GDP in that year (see column 2, Table II-2). A large proportion of this expenditure is devoted to social protection (i.e., 9 percent of GDP in 2017), while education and health expenditures represent 4.8 and 4.9 percent of GDP in 2017, respectively. Table II-2 presents the composition of Colombian government expenditures in greater detail. The expenditures analyzed in this work represent 33.7 percent of total government expenditures and 42.9 percent of social protection expenditures. A brief description of government expenditures is presented below.

Column 6 of Table II-2 presents the ratio between total government expenditures that are obtained with the household survey and the amount reported in the administrative data. This ratio differs from 100 percent since the household survey is not representative of each social program or transfers analyzed in this document, so the number of beneficiaries differs from that of the administrative records. Consequently, the total resources transferred likewise vary by the program. However, in the case of large programs, such as _Más Familias en Acción_ and in-kind transfers for education and health, it is possible to have a better approximation of the total values. An additional reason why the survey data do not align with administrative records is the non-existence of a municipality variable. That is, a domain variable is available for the 38 municipalities that are representative of the survey and the department variable, but, in many cases, a municipality is necessary to be able to perform a better allocation of the transfer.<sup>8</sup>

> 6 For more details on how personal income tax and social security contributions operate, as well as how they were processed for inclusion in the incidence analysis, see annex I in Nuñez et, al. (2019).

> 7 For more detailed information see annex III, in Nuñez et, al. (2019).

> 8 For more information see annexes II, IV, V, and VI, in Nuñez et, al. (2019).

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