Peru's corporate tax rate seen as competitive

Peru has a corporate tax rate that is regionally competitive and the government of President Martín Vizcarra is not likely to follow in the footsteps of some South American leaders who are planning to lower corporate taxes, according to an E&Y tax expert.

Last year saw the Argentine government of President Mauricio Macri enact a sweeping tax reform, which was approved by congress in December and included a reduction in the corporate rate.

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Corporate taxes are likely to be lowered next year in Brazil and Colombia as president-elect Jair Bolsonaro and President Iván Duque are both aiming to create a more attractive business environment to spur economic growth.

Peru's corporate tax rate of 29.5% is at a competitive level compared to several other countries in South America and the strong interest from international companies in investing in the country is proof that the rate is not excessively high, David Warthon, a tax expert and partner at E&Y Perú, told BNamericas on a recent visit to Chile.

The corporate tax rates in Argentina, Brazil and Colombia are at 30%, 34% and 33%, respectively.

What Peru instead needs to focus on is increasing its level of tax revenue, said Warthon, who was visiting Chile to advise clients on the Peruvian tax changes.

In 2016, the Andean nation's tax-to-GDP ratio was 14% compared to averages for Latin America and the Caribbean and the OECD of 22.7% and 34.3%, respectively, according to the latest available comparative figures.

Peru's tax-to-GDP ratio was 16.9% in 2014 but gradually fell to 13.3% in 2017, according to the country's central bank.

The end of the last commodities boom and sharp falls in metals prices were the main reason for the drop in tax revenue, but other factors such as high informality and evasion also make it difficult for the government to bring in more, said Warthon.

The low level of tax revenue is an obstacle to social and economic development and Warthon said he expects the main tax focus of the Vizcarra administration to be on increasing collection and giving tax authority Sunat greater powers to combat evasion.

Efforts aimed at reducing red tape in the tax system are also to be expected, Warthon added.

Taxes are singled out by the World Bank as one of Peru's weak areas in its Doing Business ranking.

In a report published last month, the World Bank said that it takes more than 30 weeks to complete a corporate income tax audit in Peru, compared to the Latin American average of less than 22 weeks.

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