Colombia's Plan to Increase Fuel VAT Step by Step

Colombia's government has unveiled a tax reform bill that seeks to phase out the preferential VAT treatment long enjoyed by gasoline and diesel. Under the proposal, the value-added tax applied at the producer level would rise from the current 5% to 10% on 1 January 2027, and then jump to the full general rate of 19% a year later.

The plan also extends the standard VAT rate to the alcohol used for blending with gasoline (from 1 July 2027) and to biodiesel blended into diesel (from 1 January 2027). In addition, the retail margin on regular gasoline would become fully VAT-liable from the start of 2027, closing the final gap in the multi-phase VAT chain.

The government expects to collect about COP 3.6 trillion in 2027 and an average of COP 8 trillion per year from 2028 onward, once the preferential treatments are removed or adjusted. Officials argue the change would make the tax system fairer and align it with environmental sustainability and the energy transition, noting that Colombian fuel prices currently sit below the regional average.

Conscious of the impact on cost-sensitive sectors, the reform text emphasizes a gradual, differentiated implementation to allow for a progressive adjustment in pump prices. If approved, the timeline leaves consumers and businesses roughly six months before the first increase hits and a further year before the full VAT rate applies.

What Higher Fuel Taxes Mean for Households and the Wider Economy

The Direct Hit to Household Budgets

The most immediate effect of this reform will be felt at the fuel pump. With transport accounting for a significant share of Colombian household spending, even a modest price rise from the initial 5% to 10% VAT will ripple through family budgets, especially for those who commute by car or rely on diesel-powered public transport. The full 19% rate in 2028 could translate to a noticeable increase in the cost per liter, although the exact amount will depend on underlying fuel prices and any compensatory measures the government may adopt.

Government Revenue vs. Economic Pain

The COP 8 trillion annual target represents a meaningful fiscal boost for a government facing spending pressures. By arguing that Colombian fuel prices are below regional peers, the administration is laying the groundwork to sell the increase as a catch-up rather than a new burden. However, the same logic also means that businesses and households will feel the convergence toward higher regional prices, potentially adding to inflationary pressures—an outcome the gradual rollout is designed to mitigate but not eliminate.

Who Feels the Pinch Most—and Who May Benefit

The heaviest cost will fall on transport-intensive industries and on lower-income families who spend a larger fraction of their income on energy and mobility. The proposed inclusion of alcohol carburante and biodiesel in the standard VAT net will also raise input costs for fuel blenders, possibly squeezing margins in the agricultural and biofuel sectors. On the other side, the government—and ultimately public services funded by the additional revenue—stand to gain if the reform passes intact.

Because the proposal is still a legislative draft, the precise final shape and timing remain uncertain. Still, the direction is clear: a steady move toward taxing fossil fuels more heavily, framed as both a fiscal and environmental policy tool.

How Colombian Consumers Can Prepare for the Fuel VAT Increase

  • Recalculate your monthly fuel budget now. With the first VAT rise to 10% penciled in for January 2027, a household spending COP 300,000 a month on gasoline could face an extra COP 15,000 a month at the pump just from that step. Start building a small cushion to absorb the increase.
  • Evaluate commuting alternatives ahead of the 2028 jump. If you drive daily, the eventual 19% VAT could add substantially more to your annual costs. Now is the time to explore carpools, public transport routes, or more fuel-efficient vehicles, especially if you're planning to replace a car in the next two years.
  • Small businesses that depend on diesel vehicles should stress-test their pricing. A transport or delivery firm buying hundreds of liters each week will see its operating costs rise from 2027 onward. Review contracts and customer pricing now so you can phase in adjustments rather than absorb the full shock at once.
  • Watch for official notifications on the retail margin VAT. From January 2027 the retail component of gasoline will be taxed, which could add a small further increment at the pump. Stay alert to government or retailer announcements so you can update your household or business numbers.