Oxfam last week published a report on inequality in Peru in which it criticised the tax system for focusing on indirect taxes and not raising the tax contributions paid by large corporations. According to Armando Mendoza, corporate tax breaks are equivalent to two percentage points of sales tax (IGV) each year. He warned against the possibility that the government may resort to increasing the threshold of sales tax in order to cover the fiscal shortfall this year.
Peru relies heavily on indirect taxes to generate government income, whose burden falls proportionately more heavily on the poorest in society. According to Oxfam, in the period between 2010 and 2016, the overall tax pressure in Peru fell from 15.4% of GDP to 14%, and the trend remains downwards. Meanwhile, the tax system has become increasingly unequal in the way it works, with those who pay most being those who receive least income. Oxfam also points out that tax evasion and avoidance accounts for an estimated 60 billion new soles, around four times the government’s current health budget.