COLOMBIA'S LOWER HOUSE APPROVES TAX-REFORM BILL

BOGOTA, Dec 11 (Reuters) - Colombian lawmakers have taken the penultimate
step toward approving a tax reform bill aimed at cutting the government's
fiscal deficit while curbing a booming trade in contraband goods, much of
which is related to drug trafficking.

The centrepiece of the bill is a broadening of the range of products and
services subject to Colombia's value-added tax -- a proposal that promises
to put a squeeze on many Colombians already suffering the effects of a
sharp economic slowdown.

The measure would clamp sales tax for the first time on such essentials as
cooking oil, soap and margarine, among other goods. The blow was softened
by the introduction of a multitiered system under which the tax rate will
range from 10 to 16 percent. Formerly the tax was applied only at the 16
percent rate.

It was approved by the lower house of Congress late Thursday after an 11-
hour debate, during which some government measures were watered down to
ease the overall burden on the poor and middle class.

Fanny Kertzman, head of the National Customs and Tax Department, said the
bill was initially expected to boost annual tax revenues by nearly $1.2
billion. But in its current form, revenue may fall short of that figure by
as much as $261 million because of a decision to continue exempting
medicines and other basic consumer goods, including diapers, canned tuna
and school notebooks, from the value added tax known as IVA.

Lawmakers also rejected the government's proposal to levy IVA on
commissions charged by banks for the use of credit cards issued locally.
But they retained a provision to levy the tax on advertising carried in big
and mid-sized media.

Kertzman told reporters she hoped the tax reform bill -- which places a 20
percent surcharge on gasoline sales and a 6 percent tax on diesel fuel --
would be beefed up again before it comes up for a final vote in the Senate.

Congress adjourns for the Christmas holidays next Wednesday and the Senate
is expected to take up the tax reform bill as its first order of business
Monday.

Fiscal austerity is not popular in a country facing unemployment that has
climbed to a 20-year high of about 16 percent. The economy has stagnated
under the weight of interest rates at 14-year highs in real terms,
triggered by the central bank's moves to shore up the wobbly peso currency.

Despite the hardships, Finance Minister Juan Camilo Restrepo has said
repeatedly that more government income, and less public spending, are the
only way to cut the consolidated public sector deficit from a current high
of nearly 5 percent of GDP.

Restrepo, who inherited an undisputed fiscal mess when he took office in
August after the election of President Andres Pastrana in August, aims to
slash that deficit to 2 percent of GDP by the end of 1999.

In a recent interview with Reuters, Restrepo conceded that the soaring
deficit in Colombia's current account balance of trade, now at a worrisome
6.6 percent of GDP, would drop by no more than about 0.7 of a percentage
point next year.

The tax reform package approved Thursday night calls for a crackdown on
Colombia's vast network of illicit markets, so-called "Sanandresitos,"
which specialise in selling contraband. The markets take their name from
Colombia's Caribbean island of San Andres, a traditional free-trade zone
that Colombians use to stock up on goods sold at much higher prices on the
mainland.

The stores, which sell everything from contraband electrical and durable
goods to cigarettes, whiskey and clothing, provide a venue for what U.S.
law enforcement officials call "black-market peso brokering," or the
laundering of illegal proceeds from cocaine and heroin sales abroad.

Under the tax bill as it emerged from the House of Representatives, owners
of the "Sanandresitos" would face a June 1999 deadline to pay import taxes
on all contraband merchandise stockpiled in their stores or face stiff
fines and jail sentences ranging between five and eight years.

To enforce the measure, the government has already announced the creation
of an elite, 1,000-strong "fiscal" police force, whose main task will be
fighting all forms of tax evasion.

Former President Ernesto Samper vowed repeatedly to eradicate contraband,
which costs domestic producers of cigarettes, textiles and other goods
billions of dollars a year in lost sales. But under his administration,
little was done to fight a problem that has grown increasingly costly since
it began to flourish in the 1960s.

Checked-by: Joel W. Johnson