Colombian Congress rejects Pastrana's tax plan

BOGOTA, Colombia (Reuters) -- The dominant party in Colombia's opposition-led Congress rejected the government's call for steep tax hikes Thursday, accusing it of trying 'force-feed' higher living costs down the throats of working-class families.

"The Liberal Party will continue in its patriotic opposition and not vote in favor of the creation of new taxes or an increase in those that affect consumer items and incomes of the working classes," the party said in a strongly-worded statement.

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It said the vast majority of Colombians, most of whom live in poverty, were calling for tax cuts rather than increases. But the government of President Andres Pastrana -- who campaigned on a pledge to lower the country's 15 percent sales tax -- had turned a deaf ear to those calls and was following a different and "contradictory" strategy.

"It consists of applying the theory that those who don't want broth get two cups," the statement said.

It was the second public statement since last week in which the Liberal Party has vowed to block tax increases the government needs to meet strict budget targets agreed with the International Monetary Fund as part of a $2.7 billion loan deal last year.

The government's tax reform bill, aimed at boosting revenues by more than $1.5 billion per year, has languished in Congress since mid-September.

Lawmakers had been widely expected to vote on it after mid-term elections on October 29. The Liberal Party, and even some members of Pastrana's own Conservative Party, balked at a measure that would impose gradually increasing levies on a wide range of basic consumer items that until now have been exempt from the so-called IVA sales tax, however.

A revamped tax reform bill, unveiled in Congress by Finance Minister Juan Manuel Santos Thursday night, watered down some of the more unpopular measures. But it would increase the sales tax to 16 percent and calls for a 100 percent hike in Colombia's 0.02 percent tax on banking and financial transactions.

The Liberal Party, which effectively controls both houses of Congress, said it would oppose any move by the government to share the costs of its IMF-mandated fiscal austerity program with ordinary Colombians.

"The tributary (reform) package is a minefield of taxes," said Friday's statement, which was signed by Liberal Party president Luis Guillermo Velez.

In its separate statement last week, the Liberals urged the Pastrana administration to renegotiate Colombia's foreign debt and the terms of its IMF loan deal rather than impose any new taxes.

To help narrow any budget deficits, it also said Pastrana should call on the central bank to invoke emergency powers, granted under the constitution, to award the government soft or interest-free loans.

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