Pressure group points to the need for tax overhaul

9 September 2018

 The Grupo de Justicia Fiscal (GJF), an ad hoc group made up of Cooperacción, Oxfam and Propuesta Ciudadana, has issued a report that points to the urgency of a comprehensive tax overhaul in Peru.

It shows that Peruvian tax pressure has continued to decline, falling to just 13.7% of GDP last year, the lowest figure in 15 years. And Peru’s tax health is increasingly dependent on highly volatile copper prices which are currently declining.

To correct this, GJF recommends action across five fields: reducing tax evasion, ending tax rebates, rationalising tax exonerations, dealing with tax debts, and adjusting taxes on mining so that they reflect the true value of output and exports. For further detail on how this could be achieved, see here.

All this will require not only the redesign of the tax system but also an overhaul of the tax collection agency SUNAT. Just from tax evasion, GDF calculates that the Peruvian treasury will miss out on 66 billion soles worth of revenue this year.

The Group, which will put its recommendations forward to Congress, argues that Peru is the only member of the Pacific Alliance not to reform its tax system in recent years. It says that if Peru wants to join the OECD, the club of developed countries, it needs to put its tax regime in order.

Peru has one of the lowest tax takes of any country in Latin America. According to ECLAC the average for the Latin American/Caribbean area was 22% of GDP in 2017. 

But as if to rebut the GDF proposals, Energy and Mines Minister used a press interview last week to make the temporary VAT tax refund to mining companies a permanent feature of the tax code. This coupled to his support for the hydrocarbons legislation (see PSG article), he argued, would lead to increased investment. 

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