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Peru Agrees To Broaden Tax Base

by Mike Godfrey,, Washington

28 May 2015

Peru must consider measures to offset the revenue that will be lost from the recent corporate income tax cut, the International Monetary Fund has said.

Peru's President, Ollanta Humala, on December 30, 2014, enacted a law that included a reduction in the corporate tax rate from 30 percent to 28 percent in 2015, with further cuts planned to bring the rate down to 26 percent by 2019.

The Fund noted in its 2015 Article IV Consultation report for the country that the corporate income tax cuts had aligned rates in Peru with the rest of the region and would support private investment and growth. However, it pointed out that the tax cuts have exacerbated an existing revenue shortfall in the country.

The Peruvian authorities have agreed with the IMF that compensatory measures are needed to reverse the revenue losses and enhance the equity and efficiency of the tax system. In particular they agreed on the need for base-widening measures, including streamlining exemptions, boosting compliance rates (particularly in relation to the local property tax), and undertaking a review of excise taxes.

The corporate income tax reduction combined with a reduction in the personal income tax rate for the lowest income segment, from 15 to 8, percent will result in a revenue loss of about 0.7 percent of gross domestic product (GDP) in 2015, the IMF said.

TAGS: tax | investment | economics | property tax | fiscal policy | revenue guidance | law | International Monetary Fund (IMF) | corporation tax | tax rates | Peru | tax reform | individual income tax

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