For Bogotá to improve public finance and meet growing demands for quality services, reduce inequalities, and advance sustainable development, a new people-centred fiscal pact becomes essential. This effort rests on two interdependent pillars: active citizen engagement through the promotion of a tax paying culture, and the improvement of the tax system’s design through three key taxes, the Industry and Commerce Tax (ICA), recurrent taxes on immovable property (hereafter referred to as the property tax), and environmental taxes.
The first pillar focuses on building a tax-paying culture, and survey results show encouraging signs of progress in this regard. Citizens and businesses generally view taxation as a contribution rather than a cost. Based on a selected group of citizens and firms, 62% of citizens and 61% of firms consider tax payments an investment in Bogotá’s progress, and more than 80% of businesses acknowledge that taxes are essential to finance public services. Yet confidence is undermined by perceptions of weak returns. Only one quarter of respondents believe they receive fair value for their taxes, and close to 40% of citizens feel revenues are not used for the public good.
Concerns over equity and corruption strongly influence attitudes. Over 40% of citizens believe district taxes do not reflect ability to pay, while 86% identify corruption as a key factor shaping their views. Despite this dissatisfaction, willingness to comply remains strong: 86% of citizens and 95% of businesses reject tax evasion.
The development of a tax paying culture requires building trust through more transparent and efficient use of revenues, simpler procedures, greater opportunities for taxpayer voice, and expanded fiscal education. Support for targeted measures, such as taxing environmentally harmful goods (65% in favour), shows that linking taxation to fairness and visible outcomes can reinforce citizen engagement and foster a culture of voluntary compliance.
The second pillar focuses on building a simpler, more progressive, equitable and sustainable tax system. Three key local taxes are central to this effort, the ICA, the property tax and environmental taxes. International experiences can offer valuable insights to enhance their design and effectiveness.
The ICA is Bogotá’s main tax, accounting for nearly half of tax revenues since 2021. Its 14 differentiated rates across sectors create complexity, raise compliance costs, and reduce transparency. Simplifying the ICA and making it more progressive could boost revenue, support formalisation, and improve fairness. Current misalignments may currently burden low-margin industries while favouring profitable ones, and a gross-income-based structure creates distortions. Modelling suggests that aligning rates with income or profits could raise revenues by 6-16%, with progressive schemes further increasing collections and equity.
Bogotá currently offers a complex landscape of tax incentives, with special treatments and exemptions scattered across multiple laws and decrees. Special treatments and incentives add complexity, as rules are scattered across laws and decrees. While well-targeted incentives can encourage investment, poorly designed ones can generate substantial fiscal and economic costs, including foregone revenue, limited effectiveness, windfall gains, economic distortions, and increased risks of tax avoidance. Greater coherence with national priorities and stronger evaluation are essential. Reforms such as pre-filled tax returns for small taxpayers, improved monitoring, and enforcement – especially given the 20% ICA evasion in 2024 – could enhance efficiency, equity, and sustainability.
The property tax, Bogotá’s second-largest revenue source after the ICA, accounted for 34.8% of tax income in 2024. It places a relatively higher burden on low-income and informal households: in 2022, it represented 1.7% of income for the lowest quintile and 1% for fully formal households. Between 2019 and 2023, the average evasion rate was 16.4% with higher evasion observed in strata 1 and 2, while the largest revenue losses were concentrated in middle and high-income strata (3, 4, and 6). Targeted enforcement and efforts to reduce evasion could improve fairness and compliance.
International experiences – from Barcelona, Boston, and Montevideo – highlight the benefits of regularly updating property values, increasing payment frequency, offering discounts to vulnerable groups, and using digital tools and enforcement to boost compliance. Reforming Bogotá’s property tax requires balancing revenue and equity: more rates could improve progressivity but increase complexity, while a simpler structure reduces administrative burdens but may be less equitable. Effective reform must weigh these trade-offs to build an efficient and fair system.
Finally, to advance a greener tax structure, Bogotá’s environmental taxes could better reflect environmental externalities, notably CO₂ emissions. Transport is the main source of emissions in the city, accounting for around 40% of greenhouse gases, with 65% of trips still relying on fuel-based vehicles. As of April 2024, electric and hybrid vehicles remain marginal, making up just 0.03% and 1.33% of the fleet, respectively. Most vehicles are old and fossil fuel-dependent, and SUVs dominate the gasoline fleet (77%), highlighting the urgent need for policies that accelerate the shift to cleaner mobility.
Motor vehicle tax revenues in Bogotá are significant but could be greener. In 2024, they accounted for 9.8% of total tax revenues and 0.34% of GDP. Motor vehicle taxes are annual and based on vehicle value. Unlike many EU countries, which link these taxes to CO₂ emissions and environmental performance, Bogotá’s system does not. Colombia has yet to implement a CO₂ emissions testing framework like the Worldwide Harmonised Light Vehicles Test Procedure (WLTP) used in the EU; therefore, alternative parameters such as vehicle weight could be used to account for high-emission vehicles. Heavier vehicles, particularly SUVs, emit more CO₂, and weight-based approaches – recently applied in France – can be effective. Reassessing Bogotá’s tax incentives for hybrid vehicles by linking discounts to actual environmental performance could further support emissions reduction.
Bogotá’s Pico y Placa Solidario offers a transitional model towards a fully CO₂-based vehicle tax system but has limitations. This voluntary congestion fee incorporates environmental criteria, charging higher fees for more polluting and higher-value vehicles, and channels revenues into public transport. However, its voluntary nature and exclusion of high-displacement motorcycles – which contribute disproportionately to local pollution – limit its impact. Expanding coverage and refining the design could enhance environmental effectiveness. However, protecting low-income groups affected by this through targeted compensation measures is essential.
A public lighting tax that considers socio-economic factors and energy use could support Bogotá’s green transition. Lighting is a major energy user, accounting for up to 40% of municipal electricity consumption in some cities and about 6% of global CO₂ emissions. Bogotá still needs to replace around 100 000 streetlights with LEDs, which could cut emissions by up to 7% and reduce energy use by 50%. In several Colombian cities, local public lighting taxes already play an important fiscal role, including Barranquilla, Bucaramanga, Cali, Cartagena, Medellín and Pereira. These taxes generate significant revenue to fund energy-efficient upgrades that can reduce both costs and emissions.