IMF Urges Peru To Broaden Tax Base

by Mike Godfrey, Tax-News.com, Washington

04 February 2009

The International Monetary Fund has this week published the conclusions of its recent Article IV Consultation with Peru.

Observing that Peru’s economic expansion is the longest on record, and inflation remains among the lowest in the region, the IMF suggested that the impact from the global crisis has been moderate, but that high dollarization poses risks. Overall, it suggested, the outlook for 2009 is favorable, but with heightened downside risks.

However, the Fund went on to caution that despite significant progress, broadening the tax base remains a key challenge.

It observed that:

"Tax revenue-to-GDP is at its highest since 1980. At 18.3% of GDP in 2007, this ratio remains below many countries in the region—and is still largely dependent on mining-related revenue, which represents a quarter of total central-government revenue."

And continued:

"The authorities were in the process of implementing the 2007 tax reform, to begin taxing capital income and gains in 2009, although they did not rule out some delays. They recognized that recent reforms to simplify VAT procedures for small tax payers may undermine efficiency gains."

"The authorities agreed that it was also important to continue enhancing tax administration. The new Customs Law preserves its administrations at SUNAT, critical for exploiting synergies between customs and domestic tax collection. They also agreed that it was important to restore fuel excise taxes to 2004 levels in the period ahead, particularly for the most environmentally noxious."

The IMF report went on to note that:

"Staff encouraged the authorities to proceed with the reform of tax exemptions planned for March 2009. Draft methodological guidelines for the assessment of all existing tax exemptions... under the new regime had been approved and the authorities intended to issue them shortly. However, they noted that advancing this reform may prove politically challenging. One particular example was the recent Congressional passage of a two-year-delay (to 2013) of the replacement of exemptions of VAT and fuel and excises with direct budget transfers in the Selva region."

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