Interview : Humberto Astete Miranda
What areas of the fiscal regulatory framework should be targeted by the tax reform?
HUMBERTO ASTETE MIRANDA: A large part of the Peruvian economy fails to pay taxes, which is why the reform should prioritise the fight against tax evasion in the informal economy. At the same time it is important to enhance the use of invoices. One of the reasons why invoices are often not requested is because the provider has no incentive to issue receipts. During then-President Pedro Pablo Kuczynski’s administration a reduction of the taxable income through invoices was established for individuals. The current administration, under President Martín Vizcarra Cornejo, should roll out similar measures to enhance invoice requests.
Furthermore, simplifying the fiscal framework for small businesses is key. There are several frameworks in place for small and medium-sized enterprises that are too complex. Only one framework is needed for small businesses, while medium and large companies should be subject to general taxation.
Another aspect that should be addressed is the rationalisation of tax exemptions. A cost-benefit study is needed to inform the government of which exemptions should be kept, since those that represent a high cost for the state should be removed.
Lastly, it is important to implement two measures that enhance investments. First, the tax regulation for the public-private partnership (PPP) model that will allow Peru to bridge its infrastructure gap needs to be updated as it does not correspond to PPP schemes. Second, companies are becoming capital exporters. This is a relatively new reality for Peru, and it should be addressed by new tax regulations.
What are the primary obstacles to enhancing tax collection levels, and how can this be addressed?
ASTETE: The main challenge to increasing tax collection levels is expanding the tax base. Most previous reforms focused on improving the tax regime for formal businesses; however, the main issue is that a large percentage of economic activities are informal and do not pay taxes. Therefore, a tax reform that focuses on increasing the base is crucial to its success, as is establishing tax evasion as a key pillar.
Furthermore, there are some measures that should be implemented when expanding the tax base, such as reducing compliance costs. It takes several hours to fill in a digital tax form, which is required on a monthly basis, thus forcing businesses to invest in additional human capital.
Higher levels of formalisation could also be achieved through the rationalisation of tax exemptions, which would result in faster conflict resolution times and encourage the implementation of further agreements for the exchange of fiscal information with international tax agencies.
How would the number of double taxation treaties impact foreign direct investment (FDI)?
ASTETE: Considering that Peru aspires to join the OECD by 2023, it needs more than its eight double taxation treaties, which include the Andean Community, Portugal, Chile, Canada, Brazil, Switzerland, Mexico and South Korea. Double taxation agreements have a direct impact on the ability to enhance FDI levels. One of the first question a foreign investor asks when seeking opportunities in foreign markets is if there is a double taxation treaty in place between Peru and the investor’s country. Such treaties mitigate fiscal costs associated to an investment by establishing reduced rates on international payments for royalties, dividends, interests, technical assistance and other business profits.
Double taxation agreements should be reached with those countries that invest the most in Peru, such as Spain, the UK, the US, the Netherlands and France, as well as with Peru’s most important trade partners, which include China, Germany and Japan.
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