Peru To Reinstate Capital Gains Tax On Share Profits

by Mike Godfrey, for LawAndTax-News.com, New York

14 March 2007

Making use of a recently-passed law giving the government 90 days to issue tax reform laws, the Peruvian finance minister Luiz Carranza announced that existing tax exemptions on stock market capital gains and bond interest will be rolled back.

From 2009, a tax rate of 5% will be applied to capital gains on stock investments. However, capital gains and interest on government-issued paper will remain tax exempt. These changes were agreed with the IMF during Article 4 consultations earlier this year.

The government is not able to use the 90-day delegation to create new taxes, raise the rates of existing taxes,
introduce tax exemptions, or tax savings.

The government had agreed with the IMF that a comprehensive reassessment of tax incentives was essential to strengthening the effectiveness of the tax system. IMF staff had also recommended transforming the temporary tax on assets (ITAN) into a minimum corporate income tax. However, the government decided to maintain the ITAN in place for 2007 at a reduced rate of 0.6%.

Peru posted growth of more than 7% in 2006 and expects to maintain at least 5% growth in 2007. The public sector finances are nearly in balance.

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