This chapter presents Peru’s main tax policy challenges and proposes a series of policy recommendations to address them. The chapter introduces measures to gradually increase Peru’s tax-to-GDP ratio, primarily by reducing informality and by strengthening the design of the tax system and the functioning of the tax administration, including through enhanced tax enforcement. The chapter also examines the risks associated with the recent increase in the use of tax expenditures, discussing ways to improve governance and oversight alongside considerations relating to the implementation of the new special economic zones. In addition, the chapter explores policy options to enhance the financing of the social protection system, improve the taxation of the mineral sector, and reform the schedular personal income tax system, the simplified business tax regimes, and the indirect tax system, and introduce measures to strengthen the financing of subnational governments.
OECD Tax Policy Reviews: Peru 2026
Abstract
This chapter outlines the three main challenges that Peru’s tax system is facing, as well as nine additional challenges, and provides policy recommendations to address them. The chapter is divided into 12 sections, each of which focuses on a particular tax policy challenge. Many of these challenges are cross‑cutting and interrelated, highlighting the need for a coherent and coordinated approach to reform. The identified challenges and associated recommendations aim to mobilise additional revenues in Peru while enhancing horizontal and vertical equity and avoiding adverse effects on economic growth. Several of the challenges examined in this chapter are considered in greater depth in subsequent add-on chapters, which offer a more detailed analysis and additional tax policy recommendations.
Source: OECD.
Peru’s tax-to-GDP ratio was 16.3% in 2024, which is low by international standards. The tax-to-GDP ratio in Peru is lower than in every OECD country and below the LAC average of 22%. It also remains below the average OECD tax-to-GDP ratio (24.8%) at the time OECD countries reached a comparable GDP per capita level to Peru’s level today (OECD, 2025[1]; OECD et al., 2026[2]). Furthermore, despite several decades of sustained economic growth, Peru’s tax-to-GDP ratio has not shown a sustained upward trend. Instead, it fluctuated considerably within a range of 15-19% between 1994 and 2024 (see Figure 1.1), despite a substantial increase in GDP per capita over the same period.
Peru’s low tax-to-GDP ratio is primarily driven by high levels of informality and limited tax compliance. Additional contributing factors include specific choices in the tax system design, as well as the impact of tax expenditures (TEs). In recent years, Peru’s CIT and VAT non-compliance rates have ranged from 33-55% and 28-38%, respectively (SUNAT, 2024[3]; SUNAT, 2022[4]). Had there been no non-compliance with these two taxes, Peru’s tax-to-GDP ratio would have reached 23.5% in 2021.1 In addition, the persistently high level of labour informality (around 70%) limits the contribution of SSCs and PIT to total tax revenue (see Figure 1.1) (INEI, 2026[5]). TEs further erode Peru’s revenue mobilisation. In 2025, the foregone revenue due to TEs was estimated to be 2.2% of GDP (SUNAT, 2025[6]); however, these estimates do not yet fully capture the recent trend towards the introduction of additional TEs. In addition, certain features of the tax policy design contribute to the relatively low tax-to-GDP ratio.
Tax revenue as a percentage of GDP by tax type, 1994-2024
Notes: SSC refers to social security contributions.
Source: OECD Revenue Statistics.
Without a sustained increase in tax revenues, Peru risks widening fiscal deficits and a rapid increase in public debt, which raises concerns about fiscal sustainability in the medium term. Peru’s tax-to-GDP ratio is already lower than its expenditure-to-GDP ratio, as evidenced by a fiscal deficit of 2.2% of GDP in 2025 (Ministry of Economy and Finance of Peru, 2025[7]). Furthermore, the recorded deficit for 2025 was offset by one-off deficit-reduction measures, such as a tax amnesty, the sale of state assets, and the use of the El Niño reserve fund in a non-El Niño year. This suggests that the actual fiscal shortfall in 2025 was considerably larger than 2.2% of GDP. In October 2025, Peru’s Fiscal Council projected that the country’s fiscal deficit would remain above 3% of GDP over the next decade. Consequently, the public debt‑to‑GDP ratio is projected to rise to almost 50% by 2036, up from approximately 30% currently (Merino and Murga, 2025[8]).
Strengthening tax revenues is essential to support medium‑term fiscal sustainability and create the fiscal space needed to support growth‑enhancing public investment and social spending in Peru. Inadequate provision of public goods can hinder stronger and more inclusive economic growth. For example, increased spending on education in Peru could improve workforce skills and strengthen labour productivity (OECD, 2025[9]). Furthermore, additional spending on infrastructure is required to reduce high logistics and transport costs (IMF, 2025[10]). Spending in these two areas could stimulate business investment and boost productivity. Furthermore, increased spending on public health and social protection could improve well-being and equity (OECD, 2025[11]). Implementing the recommended increases in expenditure in these areas, particularly given Peru’s existing fiscal shortfall, would also require raising the tax-to-GDP ratio. However, the benefits of increased spending depend on the efficiency of public spending and, more broadly, on the government’s ability to translate higher revenues into improved social and economic outcomes.
There is a tendency among policymakers to rely on TEs to achieve policy objectives that could be delivered through other mechanisms without eroding the tax base. According to the Fiscal Council of Peru, as of October 2025, a total of 38 laws creating or expanding TEs had been approved during the 2021-2026 legislative session. The process through which these TEs have been designed and introduced deviates from the good governance practices mandated in Norm VII of the tax code. Notably, the opinion of different directorates within the Ministry of Economy and Finance (MEF) is often not sufficiently considered when new measures are implemented, including the ex-ante evaluation of their revenue impact. Moreover, there has been a substantial increase in the use of profit-based tax incentives, such as reduced tax rates and tax holidays. Annex A presents international evidence on the effectiveness of these types of tax incentives. The recently approved TEs risk failing to achieve their objectives, forgoing tax revenue on economic activities that would still have occurred in their absence and, over time, putting pressure on the country’s fiscal stability. Recommendations to address these issues are discussed in more detail in the subsection on TEs in this chapter (Challenge 4), and in Chapters 3 and 6.
Informality and non-compliance remain high. Around 70% of Peru’s labour force is informal (INEI, 2026[5]). This high level of labour informality, which has not decreased substantially in over a decade, narrows in particular the base of social security contributions (SSCs) and personal income tax (PIT). Combined revenues from these taxes amounted to just 4% of GDP in 2023 and represented a smaller share of the tax mix than in the average LAC or OECD country (OECD, 2025[1]). Additionally, high levels of business informality in certain sectors result in significant CIT and VAT non-compliance.
Poor quality public spending undermines tax morale and reduces voluntary compliance, as taxpayers perceive an imbalance between the taxes they pay and the level and quality of public services that government provides in return. Firstly, the provision of public services, particularly by subnational governments and in remote areas, is often considered inadequate (IMF, 2025[12]; IMF, 2025[10]). Peru exhibits a relatively low level of spending efficiency, creating the impression that paying additional taxes will not result in a significant improvement in public services (OECD, 2025[9]). For example, although Peru allocates the highest percentage of GDP to infrastructure, compared to peer countries, it is perceived as having the poorest infrastructure quality (OECD, 2025[9]). Secondly, the contributory healthcare system for formal sector workers, EsSalud, is not perceived to deliver higher quality services than the non-contributory healthcare scheme, SIS, which covers low-income households, independent workers, and microenterprise workers at low contribution rates. Alongside efforts to increase tax revenue, attention must be given to improving the capacity of subnational governments, the quality of contributory social protection for formal sector workers, and the efficiency of tax collection and spending. While these objectives must be considered in their own right, they must also be considered as part of a strategy to increase tax morale and tax compliance.
In the absence of robust enforcement, high levels of non-compliance and low tax morale tend to reinforce each other. Firms that employ informal workers are very unlikely to be detected (Bosch et al., 2026[13]). This indicates weaknesses in the enforcement of labour regulations, which will be discussed later in this chapter. Furthermore, Peru’s tax administration’s (SUNAT) natural emphasis on current revenue collection may entail trade-offs with investment in monitoring the informal sector and taxpayers in the presumptive and simplified tax regimes, which constitute tomorrow’s tax base. High levels of tax evasion, coupled with the widespread presence of partially or fully informal firms and workers, contribute to inequities and undermine the level playing field in the economy. Firms that meet their tax obligations may be at a disadvantage when competing with non-compliant businesses, which can reduce incentives for compliance more broadly. This affects tax morale and reduces voluntary compliance, including among firms that would otherwise be willing to comply.
Peru’s past economic growth has not translated into sufficient revenue growth to increase Peru’s tax-to-GDP ratio. Over the 2004-2024 period, Peru experienced sustained economic growth: GDP per capita increased by 84%, growing by an average of 3.2% per year in constant prices. However, the tax-to-GDP ratio in 2024 is close to its 2005 level of 16% (SUNAT, 2026[14]; OECD et al., 2026[2]). Increases in GDP per capita typically reflect higher productivity and profitability, implying a strengthening of the overall tax base and an enhanced capacity to mobilise tax revenues across the economy. Ideally, such long periods of sustained economic growth would automatically generate increases in the tax-to-GDP ratio. Without such a trend, Peru’s tax-to-GDP ratio will not converge with the averages for LAC or the OECD in the long term, even though its GDP per capita will (possibly) do so (Figure 1.2). This pattern is particularly notable in the context of the fiscal shortfall and rising expenditure needs discussed above. As discussed below, this suggests a low “tax revenue buoyancy” and reflects growth in sectors marked by high informality and non-compliance, as well as in activities subject to low effective tax rates alongside high volatility in mining revenues.
Note: GDP per capita is log base 10. The red dot represents the average tax-to-GDP ratio and GDP per capita among countries in the LAC region for which 2024 data was available in the OECD Revenue Statistics Database. The green triangle represents the 2024 average tax-to-GDP ratio and log GDP per capita among OECD countries.
Source: World Bank GDP Database, OECD Revenue Statistics Database.
Tax revenues are volatile and the tax revenue buoyancy is low on average over time
Tax buoyancy measures the extent to which economic growth translates into tax revenue growth. Tax buoyancy is defined as the ratio of tax revenue growth to GDP growth. To increase the tax-to-GDP ratio, Peru would need to achieve a tax buoyancy ratio greater than 1 over time. This means that revenue must increase faster than GDP. A tax-to-GDP ratio that remains unchanged despite economic growth, as observed in Peru, suggests that the long-run tax buoyancy is close to 1.
Tax revenues in Peru are volatile, and short-term fluctuations appear to be driven largely by mineral price cycles. The tax-to-GDP-ratio in Peru has fluctuated within a band of 15-19%, closely following the price of minerals (Figure 1.3). Rising mineral prices lifted the tax-to-GDP ratio from 15% to 19% between the mid-2000s and the early 2010s amid strong economic growth. However, the ratio then declined from 19% to 15% between 2014 and 2017 as mineral prices fell. After the decline in mineral prices, the tax-to-GDP ratio did not rise to its previous level of 19% again until mineral prices increased in 2021-2022. Since then, the tax-to-GDP ratio has fallen and dropped to 16% in 2024, essentially returning to its 2005 level.
Historically, tax buoyancy exceeded 1 during mineral price booms but decreased when mineral prices declined. During 2003 to 2013, average tax buoyancy reached 1.4 (Figure 1.3). Had this level of buoyancy been maintained, Peru’s tax-to-GDP would have surpassed the LAC average of 21% in 2019 and exceeded 24% in 2024. The following decade from 2014-2023 was characterized by an average buoyancy of less than 1 despite positive GDP growth in most years. This illustrates the difficulty of achieving sustained increases in the tax-to-GDP ratio in Peru over the long term. It also hints at a relatively low overall tax buoyancy in Peru (see Chapter°2).
Note: Copper price is displayed on the left-hand axis. Tax-to-GDP or tax buoyancy are displayed on the right-hand axis in the respective panels. The tax buoyancy indicator is defined as the five-year moving average (lagged) of the annual tax buoyancy indicators. Note that the years 2009 and 2020 were omitted from the tax buoyancy panel and replaced with averages of the surrounding years in order to avoid one-off effects from the 2009 financial crisis and Covid pandemic. As such, the tax buoyancy level may be best interpreted as a medium-term indicator of the trend in the tax-to-GDP ratio.
Source: SUNAT, Central Bank of Peru, London Metals Exchange.
More recently, the data suggests a disconnect between mineral prices and tax revenues: the tax to-GDP ratio declined in 2023 and 2024, despite high mineral prices and positive economic growth. In previous periods of high mineral prices, such as 2011-2014, the tax revenue buoyancy remained at or above 1 so that tax revenues increased at least proportionally with economic activity when mineral prices were high. However, in 2023 and 2024, the tax‑to‑GDP ratio declined despite high mineral prices. This pattern is observed regardless of whether total tax revenue is considered or mining tax revenue.2 For mining tax revenue, the pattern holds regardless of whether it is expressed as a percentage of GDP, mining sector operating profit or value added, or in absolute terms (see Figure 1.4). When expressed as a percentage of mining sector operating profits or value added, tax revenue on mining profits in 2023 and 2024 dropped to levels last seen in the late 2010s, when mineral prices were low. Operating profits and value added in the mining sector are currently at record levels in line with elevated copper prices (see Figure 1.4).
Note: The left panel depicts the evolution of mining sector value-added, mining sector operating profits, and income taxes and royalties’ revenue from the mining sector measured in billions of current Peruvian soles (left-hand axis) and the copper price (right-hand axis). Both the Impuesto Especial a la Minería and the Gravamen Especial a la Minería are included in these figures, in addition to revenue from the 3rd category of the income tax. The right panel depicts the evolution of revenues from taxes and royalties levied on the mining sector’s profits as a percentage of GDP, as a percentage of mining sector value-added, and as a percentage of mining sector operating profits (left-hand axis) and the copper price (right-hand axis). The tax revenues data reflects taxes collected, which may differ from tax liability accrued, and excludes refunds. Royalties are included because they represent an important source of revenue in Peru even though the OECD Revenue Statistics Database does not include them in total tax revenues. A different mining tax regime, particularly with respect to royalties, applied only in 2010.
Source: SUNAT Statistics, Tables A11, A22, A2, INEI Supply and use tables, and London Metal Exchange.
The underlying causes of the decline in tax revenue from the mining sector in 2023 and 2024 warrant further investigation. If the disconnect between high mineral prices and mining tax revenue persists, it suggests that high prices alone can no longer be relied upon to temporarily boost the tax-to-GDP ratio, even during price booms (see Chapter 2). The decline in tax revenue could possibly be driven by illegal and informal mining, as well as the emergence of new avoidance patterns in the formal sector as well as BEPS risks (see Challenge 10). The decline in tax revenue cannot be attributed to changes in the tax regime, as it remained unchanged across the two periods. Nor does it appear to reflect increased depreciation allowances or the deduction of larger current expenditure, which would reduce the CIT base, since annual investment in new mining projects was high in 2011-2012, declined in 2015, and remained much lower throughout the 2020-2024 period (even in absolute terms) (MINEM, 2026[15]). Furthermore, the value-added in the mining sector and its operating profits more than doubled in absolute terms since 2011-2012 and continued to increase strongly in 2023-2024 (Figure 1.4). As mining royalties are levied at progressive rates that increase with operating profit margins, it was anticipated that the increase in tax revenues would exceed the increase in operating profits and persist beyond 2022, continuing into 2023 and 2024.
Smoothing the impact of volatile mining revenues on the budget may improve the quality of public investment and support growth
Implementing mechanisms to smooth the impact of the mining revenue volatility on the budget could improve the quality of public investment. As illustrated in Figure 1.4 and in Chapter 2, the volatility of mining tax revenue significantly contributes to volatility in the tax-to-GDP ratio. Between 2011 and 2024, tax revenues declined in seven out of twelve rolling two-year periods by amounts ranging from 0.4% to 1% of GDP, with drops exceeding 0.75% of GDP in four years during this period. Half of the CIT and royalties from mining, are allocated to districts through the canon system, along with other natural resource-based revenues. Districts are required to spend these revenues on public investment. For the average district, these natural resourced-based revenues account for 36% of the budget but fluctuate by almost 30% year on year (IMF, 2025[12]). Tying a significant portion of public investment to volatile funding sources may undermine expenditure quality. For example, the largest and most impactful infrastructure projects have long time horizons and require stable funding to be completed successfully. Amid revenue volatility, however, districts appear to opt for smaller, less impactful projects. The average public investment project size is approximately USD 600 000. Furthermore, projects may be abandoned or postponed when mineral revenues fall (IMF, 2025[12]). Indeed, nearly 60% of district projects that started before 2010 and were scheduled to be completed before 2024 were not finished by that date (IMF, 2025[12]). Although public investment projects may fail to be completed for various reasons, introducing a mechanism to mitigate the impact of year-on-year variations in mining revenues on public investment budgets could help to address these challenges.
Addressing long-run buoyancy and short-term downside volatility in the tax-to-GDP ratio
Strengthening the taxation of the non-extractive economy will be necessary to support tax buoyancy. Non-extractive sectors account for around 90% of GDP and have grown at an average annual rate of 3.3% in constant prices since 2011, suggesting an increased ability to pay taxes. However, their contribution to Peru’s tax-to-GDP ratio has remained stagnant. To generate a sustained increase in the tax-to-GDP ratio, it is necessary to address long-standing informality, non-compliance, and other challenges that narrow the tax base and continue to undermine the translation of economic growth into revenue growth throughout the economy. The recent disconnect since 2023 between rising copper prices and falling tax to GDP ratio underscores this necessity, as it demonstrates that copper prices can no longer be counted on to temporarily boost the tax-to-GDP to more adequate levels (see Chapter 2).
A strategy to increase the tax-to-GDP ratio should focus on restoring the link between economic growth and tax revenue growth without harming economic growth. Increasing tax buoyancy and promoting strong economic growth are compatible goals. The period from 2003 to 2013 was characterised by strong economic growth, alongside increased tax compliance and, albeit modest, labour formalisation. During this period, the estimated VAT non-compliance rate fell from 49% to 30% but has hovered within 33-38% range since 2015 (SUNAT, 2024[3]). Similarly, the labour informality rate declined from 79% to 70% in the years leading up to 2013 but has remained at around 70% since 2014 (INEI, 2022[16]).
Strategies to strengthen tax buoyancy should prioritise broadening the tax base. There is limited scope for increasing tax rates. Previous analysis suggests that the main statutory rates of the CIT, VAT, and labour income taxes within the PIT are broadly in line with those of LAC peers and many OECD countries (IDB et al., 2023[17]). However, these tax rates do not generate as much revenue as a percentage of GDP as they do in LAC peers and OECD countries, primarily due to high levels of non-compliance and a large proportion of taxpayers operating within simplified tax regimes. The strategies for increasing tax buoyancy set out in this report primarily focus on measures to broaden the tax base. This includes bringing more businesses and individuals within the reach of the tax system, as well as limiting the introduction of new TEs that would further reduce the tax base (see the later sub-sections of this chapter for a more detailed discussion). There is also a need to strengthen anti-avoidance measures in many sectors, a topic not discussed in depth in this report. There is also scope to adjust certain tax rates, including those on capital income and mining.
Labour informality in Peru remains high and persistent. Around 70% of the labour force is employed informally, including 85% of the self-employed (INEI, 2024[18]; INEI, 2026[5]). Despite sustained economic growth and various efforts aimed at reducing informality, the level of informal employment has remained broadly unchanged since 2014. Overall, labour informality in Peru is significantly higher than in comparable countries and remains elevated relative to the country’s GDP per capita (ILO, 2026[19]).
The drivers of informality differ across income groups. Labour informality in Peru is in many cases associated with low productivity and low incomes, and with workers that lack the financial capacity to pay taxes and contributions. One third of the self-employed in Peru are small informal agricultural producers, many of whom have very low incomes and low education levels (INEI, 2024[18]). The average informal agricultural worker in Peru received an income of less than S/ 700 e per month in 2023; i.e. 60% of the statutory minimum wage (ComexPeru, 2024[20]). Incomes can be even lower for workers in remote areas of the country. For example, the average income of an agricultural worker in Puno is below S/ 400, corresponding to just 36% of the statutory minimum wage or less than USD 120 per month (ComexPeru, 2024[20]). With incomes at such low levels, it is likely that these workers are informal because they cannot afford to pay the taxes and SSCs that formal workers do.
However, informality also persists in parts of the labour force where a lack of workers’ ability to pay cannot explain why they are informal. For instance, over 55% of the self-employed in Peru with income in the top income decile are informal (World Bank, 2025[21]). The persistence of high levels of informality among these workers suggests that growth in higher-productivity sectors alone will not be sufficient to reduce informality across the economy. Stricter tax enforcement will also be required.
Substantial labour informality also occurs within Peru’s formal sector. Around one‑third of workers employed by formal businesses are informal, accounting for approximately one-quarter of all informal workers (INEI, 2024[18]). Informal employment also occurs in larger formal businesses. Among formal firms with 32 or more employees (the category most likely to be subject to the general tax regime) 19% of employees are informal (OECD, 2025[9]; INEI, 2024[18]).
A key priority is to strengthen the enforcement of labour laws in order to increase the probability of detecting firms that hire informal workers. One obstacle that Peru’s labour inspection authority (SUNAFIL) faces in enforcing labour regulations and sanctioning non-compliant firms is insufficient resources. Peru has the fewest labour inspectors of any country in LAC, with fewer than 0.2 inspectors for every 10 000 workers, compared to 1.7 in Chile and 0.8 in Uruguay (Bosch et al., 2026[13]). The number of complaints exceeds the number of inspectors, and less than 0.1% of firms are inspected each year (Bosch et al., 2026[13]). Another limitation concerns targeting and inspection procedures: SUNAFIL typically only conducts an inspection once a formal complaint has been filed. By this time, the informal worker may already have left the firm, making it difficult to gather legally admissible proof of an employment relationship. SUNAFIL does not check the formal status of other employees at the same firm in these situations. Furthermore, SUNAFIL does not inspect firms that are not registered for tax purposes, which creates a large tax-induced incentive for firms who hire informal workers to be unregistered. It is recommended that funding is increased to hire more inspectors, and that the targeting of inspections and the procedures are strengthened. A key priority should be enhancing coordination between SUNAFIL and SUNAT, and beginning to monitor non-registered firms. While this effort may not be cost-effective in the short term, it is a strategic priority for increasing tax revenue in the medium and long term. Inspections could be targeted using financial and other information to identify firms most likely to hire informal workers. Financial information from SUNAT, as well as licensing information from municipalities, could be made available, to improve SUNAFIL’s targeting of enforcement activities. Indeed, studies indicate that increased enforcement is the most effective way to reduce labour informality (Bosch et al., 2026[13]).
Experience with the microenterprise labour regime in Peru shows that reducing the cost of formal hiring alone is insufficient to formalise the labour force. Even though the microenterprise labour regime reduces the benefits that increase labour costs to almost zero, many microenterprises and their employees remain in the informal sector. Under this regime, firms with sales of up to 150 UIT (approximately USD 250 000) are exempt from almost all non-wage labour costs, including employer SSCs. This threshold covers 94% of all businesses in Peru and over 8 million people, accounting for nearly half of the Peruvian labour force (PRODUCE, 2024[22]). The resulting labour tax wedge at the average wage amounts to just 1.3% of labour costs, compared to 18.1% under the general regime while most other benefits that increase labour costs do not apply under the microenterprise regime (see Chapter 4). Nevertheless, 88% of workers in firms eligible for the microenterprise regime remain informal (PRODUCE, 2024[22]). This outcome illustrates that reducing the cost of formal hiring alone is insufficient to generate meaningful reductions in labour informality.
Another example is the NRUS regime: despite the very low effective tax burdens it imposes on the natural persons with a business, informality remains high among this group. The Nuevo Regimen Unico Simplificado (NRUS) is a presumptive tax regime available to the individuals who own a small business with earnings below approximately 6 times the minimum wage. It excludes the liberal professions. NRUS taxpayers make a monthly flat tax payment of S/ 20 and S/ 50, applicable to gross monthly income up to S/ 5 000 and S/ 8 000, respectively. This payment replaces the CIT, PIT and VAT while pension and health contributions for the business owner are optional. NRUS taxpayers are also eligible for reduced SSCs under the microenterprise labour regime if they hire workers. Furthermore, the NRUS reduces the administrative burden of formalisation by eliminating the need for financial record‑keeping or accounting books. Despite these substantial reductions in tax liabilities and compliance costs, informality among natural persons with a business remains very high.
Effective approaches to reducing labour informality should not only aim at reducing the costs of formalisation but also increase the benefits of formality and strengthen enforcement of both tax and labour regulations. A whole-of-government approach would also require reforms that enhance productivity, alongside strong education and skills systems. Crucially, it would depend on high institutional quality, the rule of law, and well-functioning public services (OECD, 2025[9]). For most informal entrepreneurs, the main reason for remaining informal is not an inability to pay taxes, but rather a lack of compelling reasons to register their business. Survey evidence from ENAHO shows that in 2021, only 2% of informal respondents mentioned an inability to bear the tax burden when asked about their reasons for remaining informal. Conversely, 49% of respondents indicated that they saw no reason to become formal (INEI, 2022[16]). This reflects both push and pull factors. Firstly, the probability of being detected and penalised for hiring informal workers (especially by microenterprises) is extremely low due to limited enforcement (Bosch et al., 2026[13]). Secondly, the benefits of formality are perceived as too small. In particular, there is little perceived difference in quality between formal and informal social protection. For example, formally individuals in the NRUS and formal microenterprise employees have access to the same health system (SIS) as their informal counterparts because no SSCs have to be paid under both regimes. Therefore, these workers do not obtain access to EsSalud, and informality rates are 88% and 83%, respectively, among these two groups. Therefore, a more effective formalisation strategy could focus on improving the quality of formal social protection, as well as strengthening labour enforcement.
Nevertheless, the cost of formal hiring remains high under the general regime and could act as a barrier to formalisation, even if this is not directly reflected in the tax wedge. This is because, although the labour tax wedge in Peru is not particularly high, it does not fully reflect the total cost of formal hiring in the country. For an average wage earner without children, the tax wedge including PIT and SSCs paid by both employers and employees amounts to 18.1% of labour costs under the general regime. This tax wedge is lower than in Mexico and Costa Rica, but similar to the tax wedge in Chile when non-tax compulsory payments are taken into account (see Chapter 4). However, employers in Peru are also required to make a number of mandatory payments that are neither taxes nor SSCs and, therefore, are not included in the tax wedge. These include the biannual bonus, mandatory profit sharing, the family allowance and contributions to severance savings accounts (CTS). Once these payments are taken into account, the cost of formally hiring a minimum wage worker in Peru under the general regime can be about 50% higher than the statutory minimum wage and over 70% higher than the minimum wage in the agricultural sector, where an additional, sector-specific bonus applies (see Chapter 4). While these payments do not increase the tax wedge, they do raise the cost of formal employment, particularly around the minimum wage. Ensuring that the cost of formal hiring remains aligned with the productivity of the worker should form part of a comprehensive formalisation strategy, even where priority is given to increasing productivity, strengthening enforcement, simplifying regulatory frameworks, and enhancing the adequacy and quality of social protection and health insurance systems. While non-wage labour costs constitute an important determinant of informality, reducing these costs in isolation is unlikely to yield durable reductions in informality if other underlying drivers remain unaddressed.
Complex labour regulations may cause firms to perceive formal hiring as riskier than informal hiring. The probability of detecting a labour law violation is likely higher for a formal employee than an informal one, since legally admissible proof of the employment relationship already exists. This could cause formal firms to perceive formal hiring as riskier or more costly than informal hiring. These risks are exacerbated in tourism and agriculture, fishing and small-scale mining where worker turnover is higher due to seasonal work. Furthermore, the complexity of Peru’s labour regulations makes them difficult to understand and interpret, increasing the likelihood of unintentional non‑compliance (TMF, 2023[23]; OECD, 2019[24]). For instance, lengthy and onerous dismissal procedures are easily violated by accident, which can trigger severance obligations and lengthy, costly judicial proceedings. Peru may consider simplifying labour regulations and dismissal procedures and adjusting labour inspections and enforcement as part of a whole-of-government approach to strengthen formalisation.
Several features of Peru’s tax system result in discrete increases in firms’ tax liability as they grow and surpass certain thresholds. This can encourage informality. These thresholds can hinder growth and encourage firms to operate partially in the informal economy. Studies have found clustering around the threshold of employing 10 workers, which determines eligibility for the RER business tax regime (IMF, 2024[25]). Another example is the obligation to share profits with employees, which comes into effect once a firm has hired at least 21 formal workers (Legislative Decree 892). For an employer, the decision to hire the 21st worker formally might only be justified if that worker’s labour productivity exceeds not only that worker’s wage and non-wage costs, but also the additional costs imposed on the entire workforce through profit distribution. Put differently, formal firms are incentivised to hire informally beyond the 20th worker (World Bank, 2025[21]). Other documented behavioural responses to this threshold include firm splitting, temporary hiring, or delaying business growth (Tolentino, 2021[26]). Peru could consider basing the requirement for profit distribution for large firms on gross revenues rather than on the number of employees. However, while this would reduce the disincentive to formalise labour, it could also create an incentive to underreport revenues. Alternatively, Peru could redesign the system so that the profit-sharing rate increases gradually with either the number of workers or turnover. This approach would avoid discrete designs that would create greater disincentives to formalisation and firm growth by encouraging firms to remain below 21 workers or underreport employment. The rate could start at a low initial level and rise progressively to the current rate (see Chapter 4).
The Regimen Especial a la Renta (RER) may reduce incentives for labour formalisation, since labour costs cannot be deducted under a turnover-based tax regime. Under the RER regime, firms are taxed at a rate of 1.5% levied on their gross income (calculated net of returns and discounts but without deducting costs). While this design aims to reduce compliance costs, it implies that the size of the formal wage bill has no impact on the firm’s tax liability. Eligibility for the RER extends to enterprises with up to ten workers per shift. Currently, 18% of taxpayers in category 3 are registered in this regime (SUNAT, 2026[14]). Formal businesses with six to ten employees, who are most likely to operate under the RER, demonstrate the highest rates of labour informality (50%) compared to smaller and larger firms that are ineligible for the RER (OECD, 2025[9]). These features suggest that turnover-based taxation under the RER could contribute to labour informality. Going forward, presumptive taxation based on turnover could be restricted to micro businesses under the NRUS.
However, for firms operating under the general CIT regime, the deductibility of costs may not constitute a sufficiently strong incentive to hire formal workers at the minimum wage level. This can be particularly the case in the agriculture sector, where firms benefit from a reduced tax rate. As previously noted, the cost of formally hiring a minimum wage worker in Peru under the general labour regime can be around 50% higher than the statutory minimum wage. Firms registered under the general business tax regime and subject to the 29.5% CIT rate may still find it more advantageous to employ a low-wage worker informally than to incur the additional non-wage costs under the general labour regime, even when all labour expenses are fully deductible from taxable income. This incentive is even stronger for firms in the agricultural sector, which face higher labour costs while benefiting from a reduced CIT rate of 15%. In this context, the savings in non-wage labour costs associated with informal hiring outweigh the reduction in CIT liabilities resulting from the deductibility of total labour expenses for the employer. Studies in other settings have found that firms take the statutory CIT rate into account when deciding how much of their wage bill to declare formally (Madzharova, 2011[27]). In effect, this implies that in settings where the enforcement of labour and tax obligations is relatively weak, labour informality within formal firms involves arbitrage between CIT liability and non-wage costs (including SSC liabilities).
In an environment of low enforcement, formal firms in the MYPE and general regimes may increase tax evasion through other means to compensate for their inability to deduct informal labour costs from the CIT base and to hide the turnover realised by the informal workers. Given the high rates of VAT and CIT non-compliance in Peru, formal firms that hire workers informally and, therefore, cannot deduct labour costs from the tax base, may be applying a range of other tax evasion techniques to reduce their CIT liability. These techniques could include fabricating invoices to increase reported costs or under-declaring sales to decrease reported income. This suggests that costly labour regulations and other factors that push firms towards informal hiring, which effectively constitutes non-compliance in the PIT and SSCs, may also contribute to non-compliance in the CIT and VAT.
The drivers of informality in Peru are diverse; strengthening the formalisation of the economy requires a whole-of-government approach supported by enhanced inter‑agency co‑ordination. The microenterprise and SME labour regimes are forgoing revenues without sufficiently formalising eligible workers. The regimes result in jump discontinuities in labour costs across their eligibility thresholds. These eligibility thresholds may be incentivising significant turnover underreporting, potentially eroding the CIT and VAT bases. However, reforming the special labour regimes to reduce their generosity or lower their eligibility thresholds carries risks. Unless enforcement of the tax obligations of small enterprises is strengthened, any reform might invite further evasion to meet the lowered eligibility thresholds or avoid the high non-wage costs under the general regime. An effective formalisation approach could prioritise first increasing tax and labour enforcement through a whole-of-government approach that involves coordination between government agencies. This could be complemented by reducing the regulatory burden on formal employment and the cost of formal hiring in the general regime while improving the quality of formal social protection.
Peru has taken an important step towards improving fiscal transparency by publishing a TE report that quantifies the revenue foregone from selected tax provisions. The estimated revenue foregone from all types of TEs in 2025 is relatively limited, at 2.2% of GDP (SUNAT, 2025[6]). This is partly due to low take-up in the context of significant informality and tax non-compliance. As these structural challenges are addressed and the tax system becomes more effective, the fiscal cost of TEs is likely to increase. This highlights the need for ongoing monitoring and evaluation. Peru could consider refining the definition of the benchmark tax system used to identify TEs to allow for more comprehensive coverage of tax reliefs. This would further enhance tax transparency. For instance, Peru could identify all simplified regimes as TEs (see Chapter 3).
To date, the use of tax incentives under the CIT has been limited, accounting for just 0.12% of GDP and 3% of CIT revenues. This is partly due to high levels of business tax non-compliance. As previously mentioned, the estimated revenue forgone from CIT TEs appears low for another reason: this estimate does not take into account the revenue foregone under simplified regimes. In particular, the reduced rates embedded in the MYPE rate schedule could be considered a TE, but this is not currently quantified.3 Figure 1.5 shows effective tax rates by sector compared to the rate that would apply in the absence of profit‑based tax incentives.4 Overall, the use of profit‑based tax incentives under the CIT appears limited, with the notable exception of the agricultural sector, which has benefited from a reduced CIT rate of 15% since 2001.
Note: The graph shows CIT ETRs calculated by SUNAT from the universe of 2024 tax return data in Peru (excluding lossmaking firms) by economic sector and regime. RG indicates the general regime and RMT indicates the MYPE regime. The height of the blue bar represents the actual tax liability of businesses once tax credits have been deducted) as a share of their profit before that profit is reduced by exempt income or enhanced deductions. The sum of the blue and grey bars represents a counterfactual ETR in the absence of profit-based TEs (e.g., no exempt income or sector-specific reduced rates are available). The counterfactual rate (sum of the blue and grey bars) does not reverse the impact of expenditure-based incentives and may therefore still be lower than the statutory CIT rate of 29.5%. The reduced rate of 10% applied to the first 15 UIT of profit in the RMT is considered as a profit-based TE although it is not currently measured in Peru’s tax expenditures report.
Source: SUNAT.
The recently approved TEs could result in a significant loss of tax revenue. By October 2025, Peru’s Congress had approved 38 laws creating new or expanding existing TEs since the start of the 2021-26 legislative period. According to the Fiscal Council of Peru, measures approved by December 2025 could result in revenue forgone up to 1.8% of GDP (Merino and Murga, 2025[8]). Given Peru’s low tax-to-GDP ratio and existing fiscal shortfall, this potential fiscal cost is a cause of concern. Furthermore, despite being legally required to do so, no compensatory measures to cut spending or increase revenues elsewhere have been proposed to offset the fiscal cost of these TEs. This proliferation of TEs is occurring alongside a broader expansion of fiscally costly measures, following a 2022 Constitutional Court ruling that expanded Congress’s powers to enact measures involving public spending. During the 2021-2026 legislative session up to October 2025, Congress passed 221 fiscally costly laws by “insistence”, thereby overruling the MEF’s formal technical objections validated by the executive.
The adoption of new TEs and other legislation with fiscal costs is impacting Peru’s fiscal outlook. Without the recent fiscally costly measures, the Peru’s Fiscal Council estimates that Peru’s deficit would be on track to converge to 1% of GDP in the 2030s, thus complying with Peru’s fiscal rule and stabilising the debt-to-GDP ratio at 30% (Merino and Murga, 2025[8]). However, following the approval of legislation introducing new TEs and other costly measures in the current legislative session, the fiscal deficit is projected to exceed 3% of GDP throughout the 2030s. In addition, if all of the proposed legislation containing TEs and other costly measures is enacted, the deficit is projected to exceed 6% of GDP throughout the 2030s (Merino and Murga, 2025[8]). These projections are concerning because adherence to fiscal discipline has been a key factor in Peru’s macroeconomic stability in recent decades.
The departure from mandated governance standards for TEs raises concerns
The creation of new TEs is increasingly deviating from the governance standards mandated by Peruvian law. Norm VII of Peru’s tax code sets out the requirements for creating a TE. These include: (1) a clear objective, supported by an ex-ante impact assessment that demonstrates the TE’s potential to achieve this objective; (2) quantification of the foregone revenue, alongside a proposal for compensatory fiscal measures to offset the revenue foregone; and (3) for any TE whose validity is to be extended, an ex-post impact assessment that demonstrates the TE’s ability to achieve its objectives. These requirements are key to preserve the tax system’s equity and simplicity, and are in line with international best practice regarding the effectiveness and fiscal sustainability of TEs (IMF-OECD-UN-World Bank, 2025[28]). Norm VII has strengthened coordination among public entities and across ministries within the Executive branch; however, it has not been effective in preventing Congress from enacting economically inefficient tax expenditure legislation. These requirements are rarely followed by Congress, as Congress can enact a TE that does not comply with Norm VII by “insistence”. During the 2021-2026 legislative session, up to October 2025, 17 laws creating or expanding TEs were enacted by insistence. This is more than four times the number of such enactments during the equivalent portion of the previous three legislative sessions combined (Merino and Murga, 2025[8]). Additionally, in six cases, a law reducing public revenues was not reviewed by the MEF at any stage (Merino and Murga, 2025[8]). In approximately a dozen cases, laws that violate Norm VII were not explicitly objected to by the Executive, even though the MEF’s technical analysis and assessment resulted in a negative opinion (Merino and Murga, 2025[8]). This can be partly explained by the fact that Norm VII of the tax code has the force of law, meaning it does not prevail over laws introducing TEs. Granting preferential status to Norm VII and thereby strengthening the MEF’s role in the TE assessment, would therefore require a constitutional reform.
Phasing out TEs that fall short of their objectives has proven challenging in Peru, highlighting the risks of introducing new TEs without the required technical analysis. The difficulty of reforming existing TEs illustrates the importance of adhering to Norm VII and conducting ex-ante impact assessments to ensure TEs are correctly designed from the outset. In many cases, TEs have been extended without an ex-post impact assessment demonstrating their effectiveness, in breach of Norm VII (Ministry of Economy and Finance of Peru, 2022[29]). Even worse, certain TEs have been extended without reforms despite evidence showing that they are not achieving their objectives. This was the case for Peru’s long-standing ZEDs. Law 30 446 extended tax benefits, including a 0% corporate income tax rate, for the ZEDs of Ilo, Matarani and Paita until December 2042, despite evidence indicating that these zones had not attracted substantial investment. Similarly, the reduced VAT rate in the tourism sector, which was originally introduced as an interim measure introduced during the Covid-19 pandemic to stimulate activity and job creation, was extended by Law 32 219 despite evidence showing that it had failed to stimulate sales or employment (World Bank, 2025[21]). The same applies to the drawback refund system for exporters, which reimburses import duties vastly in excess of those actually paid (Cusato, Chavez and León, 2017[30]). The need to phase out ineffective TEs and to follow the criteria set out in Norm VII has been stressed by several MEF reports (Ministry of Economy and Finance of Peru, 2025[7]; Ministry of Economy and Finance of Peru, 2024[31]). Recommendations for reforming particular TEs are described in detail in Chapter 3.
The current reliance on TEs reflects an over-dependence on the tax system to address a wide range of issues
TEs are not necessarily the most suitable instrument for resolving the issues they are intended to address. In certain cases, the use of TEs might be warranted to achieve specific policy objectives. However, in many cases, these objectives can only be effectively achieved by addressing the underlying causes directly. Using the tax system to address these issues results in foregone tax revenues and partial solutions, if any. Norm VII stipulates that TEs should only be considered if they are likely to be more effective than any available spending option. Engaging the technical expertise of the MEF to assess whether proposed TEs meet this requirement could lead to more effective policy outcomes.
Despite public expenditure potentially being a more effective option, generous CIT exemptions and reduced rates are increasingly used to attract investment. International evidence suggests that CIT incentives can only increase investment once the key precursors to investment are already in place (see Annex A for a literature review). Evidence shows that even the most generous CIT exemptions fail to attract investment in an unfavourable investment climate. In such situations, the tax savings on pre-tax profits from an economic activity may not exceed the cost of investing in infrastructure and relocating labour to carry out that economic activity. Spending measures to improve infrastructure and increase skills may be preferrable to tax incentives. These considerations may be relevant to reduced CIT rates in the Amazon, as well as to the reduced CIT rates of forthcoming ZEEPs and tourism ZEDs (see Challenge 8, and Chapters 3 and 6).
The concept of ‘smallness’ is sometimes stretched, resulting in tax benefits being granted to companies that do not need them. For instance, the reduced VAT rate for tourism was justified as a means of alleviating the tax burden on small businesses; however, the definition of a small business under this scheme encompasses 99.5% of businesses (PRODUCE, 2024[22]). This definition of ‘smallness’, based on an annual sales threshold of 1 700 tax units (UIT)5, or approximately USD 2.5 million, is used to justify reductions in various taxes, including PIT, CIT and VAT as well as administrative measures aimed at easing compliance, such as extending the filing deadline for the annual income tax return. Furthermore, businesses with a turnover of up to 150 UIT (approximately USD 234 000) can hire workers with significantly reduced social security contributions and non-wage labour costs under the MIPYME labour regime. TE proposals that are justified by the 'smallness' of the targeted taxpayers could benefit from a more data-driven approach and technical analysis by the MEF to inform their eligibility thresholds.
The recently passed and proposed TEs risk further weakening the link between economic growth and tax revenues, thereby reducing the tax-to-GDP ratio in future years. As CIT revenue collected under the general regime accounted for 20% of Peru’s total tax revenue in 2024, the overuse of CIT TEs can have large revenue implications. Certain TEs grant fast-growing industries, such as tourism (Law 32 449) and agro-export (Law 32 434) generous reduced CIT rates. Growth in these industries will subsequently generate less additional tax revenue than in the past, reducing tax buoyancy in Peru. The reduced CIT rates in the ZEEPs could also result in foregone tax revenues if the investment they attract would otherwise have occurred under the general tax regime (see Chapter 6 for a more detailed discussion). Reduced VAT rates granted to particular sectors, such as restaurants and hotels (Law 31 556) also weaken tax buoyancy.
Strengthening incentives for formalisation requires improving the attractiveness of services provided by EsSalud
The creation of the Seguro Integral de Salud (SIS) in the early 2000s led to a significant expansion in public health services and coverage (OECD, 2025[11]). The SIS currently covers around 60% of the population, primarily low-income individuals and informal workers. It is largely non-contributory; i.e. financed through general taxation. However, non‑poor self‑employed workers and micro‑entrepreneurs may enrol by paying a modest contribution; these groups account for only a small proportion of SIS beneficiaries.
The mandatory contributory scheme EsSalud, which covers most formal workers, offers more comprehensive health coverage than the SIS. However, EsSalud’s attractiveness is constrained by its underdeveloped healthcare infrastructure and long waiting times. EsSalud provides health insurance to formal workers and their dependents and to pensioners, covering approximately 26% of the population (OECD, 2025[11]). The insurance is mandatory under both the SME and general regimes and is financed through an employer contribution levied at a rate of 9%. Pensioners are subject to a 4% contribution rate. Although EsSalud offers a broader range of services than the SIS and private insurance schemes, access to care is often constrained by long waiting times. Peruvians covered by EsSalud often rely on hospital services, even for primary care, due to the limited availability of healthcare facilities (OECD, 2025[11]).
Although merging SIS and EsSalud could enhance efficiency, it could also further weaken incentives to formalise employment. The government has considered merging SIS and EsSalud for several years. However, such a reform involves significant trade-offs. While a merger could improve efficiency by increasing access to healthcare facilities for beneficiaries of both schemes, it could also reduce the incentives to formalise labour as discussed in (Nauerz and Torres, 2021[32]). These authors conclude that, although the expansion of the SIS improved welfare significantly, it had the unintended effect of increasing informality, as small businesses faced less pressure to formalise workers given that access to healthcare was provided for free.
In order to strengthen EsSalud’s financial sustainability and thereby improve the quality of services offered, Peru could consider reinstating health contributions on the two bonus payments. To enhance the attractiveness of its services, EsSalud will require both improvements in spending efficiency and increased revenues. Formal workers are entitled to two annual bonus payments, each equivalent to one monthly salary. The law provided a temporary exemption from contributions levied on these bonuses for the years 2009 and 2010. However, it stipulated that the corresponding amount would still be paid by the employer and passed on to the worker, thereby increasing their take-home pay. This provision was subsequently extended and finally made permanent in 2015. According to an ILO study, eliminating this exemption would increase EsSalud’s financial resources by 14.3% (ILO, 2023[33]). Peru could also consider levying health contributions on the CTS payment. However, such reforms that would reduce net take‑home pay may reinforce disincentives to formalisation. The impact of these changes on the tax is discussed in Chapter 4.
In line with ILO recommendations, Peru could consider removing the contribution base ceilings for independent workers providing services to the central government, public healthcare workers and teachers. Currently, public health care workers, teachers, and independent service providers to the central government benefit from contributions ceilings that do not apply to other workers. Restoring an effective contribution rate of 9% for these workers would increase EsSalud’s revenue by 7%, contributing to greater horizontal equality (ILO, 2023[33]). As this change would affect public sector workers, it is not expected to create a disincentive to formalisation.
The universalisation of non-contributory benefits would require careful planning of domestic revenue mobilisation
While proposals to make social protection benefits universal would solve current coverage gaps, they would pose significant financing challenges. Some researchers have recently proposed decoupling social security from employment to address the incentives for informality and the disincentives to formal employment. This would mean changing the rights holder from the worker to the citizen, thereby universalising rights (Levy and Cruces, 2021[34]; Ñopo, 2021[35]). In terms of financing sources, this would mean shifting from SSCs to general tax revenue. The rationale behind this is that the universal provision of basic, tax‑financed social protection floors could help to address the low coverage rates of the existing social protection system, while reducing the disincentives to formalisation associated with targeted, non-contributory programmes. However, this proposal raises the challenge of mobilising the additional revenues required to finance such a reform. Moreover, such an approach would weaken the link between contributions and benefit entitlements, potentially undermining compliance incentives as weaker perceived links between payments and benefits tend to reduce the incentive to pay taxes and SSCs, and to participate in the formal economy.
Reforms aimed at providing adequate universal social protection entail significant costs. The provision of universal healthcare services funded entirely from general tax revenues can be very costly. Depending on the scope and quality of services provided, costs can rise to as much as 8% of GDP, as observed in Denmark’s universal healthcare system. Transitioning from a contribution-based to a tax-financed social protection system can generate significant short-term financing gaps that are often difficult to offset through alternative revenue sources. In Peru, the tax bases for income tax and VAT are relatively narrow and can only be gradually broadened over time because a large part of the economy is informal. Financing such universal floors would require substantial additional domestic revenue mobilisation. This would necessitate major reforms to all major taxes, including the CIT, PIT and VAT, as well as significant improvements in tax enforcement. The reduction in SSC revenues would materialise immediately, whereas efforts to offset these losses through increased CIT, VAT and PIT revenue would take considerably longer. Without a clear strategy to mobilise domestic resources and formalise the economy, cuts to SSCs combined with universal benefits financed through general revenue would reduce the funds available for social protection. For this reason, progress in formalisation is a key determinant of the sustainability and adequacy of the social protection system, not only by strengthening contributory schemes but also by supporting non-contributory programmes through increased general tax revenue.
Building on SUNAT’s strong progress in digitalisation
SUNAT has made significant progress in digitalising the tax administration. Taxpayers can now register for a unique identification number (RUC), file annual tax returns, and fulfil their obligations entirely online. This reduces administrative and logistical barriers to compliance. SUNAT has also invested in innovative outreach initiatives to inform taxpayers of their obligations and encourage voluntary compliance. These efforts demonstrate a broader institutional commitment to digitalisation and to simplifying tax compliance.
SUNAT has advanced in its efforts to collect and use tax data but there remains scope for increasing its use for tax policy purposes. The agency publishes an annual TE report that provides estimates of the revenue foregone of major TEs. Going forward, SUNAT should prioritise sharing the underlying data with the MEF and possibly other parts of government in a timely manner for more in-depth tax policy analysis, while ensuring that taxpayer's identity is protected in accordance with the tax secrecy provisions of the Political Constitution of Peru.
Electronic invoicing (e-invoicing) has proven to be one of SUNAT's most effective compliance tools. It increases the probability of detecting VAT non-compliance, and its implementation has resulted in a significant increase in VAT revenues (Bellon et al., 2022[36]). It also reduces compliance costs by streamlining administrative procedures, while generating structured digital records of commercial transactions that can be used for enforcement and policy analysis purposes. Furthermore, e-invoicing creates incentives for formalisation. Firms that source from informal suppliers may no longer be able to deduct these expenses from taxable income, which increases the cost of operating informally. Nevertheless, e-invoicing has not completely eliminated the fabrication of false invoices or the deduction of fake purchases as an evasion strategy, and underreporting remains high. SUNAT has developed multiple tools to combat fictitious transactions, including the designation of “entities without operational capacity”, which enables the disallowance of VAT credits and income tax deductions for transactions carried out prior to such designation, as well as a tax deregistration process that prevents the issuance of invoices and the recognition of credits and deductions going forward. It is recommended to maintain the legal framework established by Legislative Decree No. 1532, as it provides SUNAT with the authority to combat tax fraud based on a risk management approach. Such legal framework establishes specific rules and procedures to exercise these powers and contributes to the actions of the Tax Administration so that they are developed within a context of legal certainty and the corresponding guarantees to taxpayers in accordance with international good practices.
SUNAT is encouraged to strengthen its use of data to improve tax enforcement further. Increasing the probability of detecting non-compliance in VAT, CIT and PIT is essential for raising the tax-to-GDP ratio in Peru over time. Linking VAT and CIT data is essential for identifying non-compliance among businesses. Similarly, linking PIT data from all categories and exploiting the use of the Common Reporting Standard (CRS) and the possibilities under the Exchange of Information upon Request (EOIR) is crucial. While SUNAT’s data sources are already integrated and encompass both internal and external information to develop algorithms for detecting non-compliance, combat tax crimes, money laundering and corruption, there remains scope to further exploit tax and third-party data. Peru endeavors to expand the use of exchange of information for tax purposes in accordance with the international agreements signed by Peru. In this regard, Peru has made significant progress in the implementation and use of both the Automatic Exchange of Information (AEOI) and the EOIR. With respect to the AEOI, Peru has implemented coordinated compliance strategies based on Common Reporting Standard (CRS) data to promote voluntary compliance among high-risk taxpayers (OECD, 2026[37]).
While expanding enforcement efforts to the informal sector may not maximise revenue collection in the short term, it is essential to broaden the tax base over time. In the short term, enforcement action targeting the general tax regime may raise more revenue than actions targeting businesses under special tax regimes or within the informal economy. While prioritising enforcement among large formal firms is aligned with the objective of revenue collection, SUNAT is advised to strengthen its use data-driven tools to target medium-sized informal firms that have the capacity to pay taxes but have not yet entered the formal economy. However, the lower probability of evasion detection within the special regimes and the informal sector may encourage firms that are not complying with tax regulations and have the capacity to pay taxes to operate outside the general regime. Increasing the risks of remaining informal for businesses that have the capacity to pay taxes but remain informal is crucial for ensuring increases in tax buoyancy over time.
Enforcement could be strengthened by enhancing data-sharing across government agencies. SUNAT has signed inter-agency cooperation and information-sharing agreements with SUNAFIL, the Ministry of Foreign Trade and Tourism (MINCETUR), subnational governments and other public and private entities. Automatic, bidirectional data exchange between SUNAT and SUNAFIL could be explored within the framework of these agreements. This would enable both agencies to improve their monitoring processes and enhance compliance with tax and labour obligations. For instance, SUNAT could collaborate with SUNAFIL to ensure that workers in formal firms are formally registered, and that SSCs and PIT liabilities have been met. Similarly, access to tourism operating licences managed by MINCETUR could help to formalise businesses in the tourism sector. Access to municipal business licence registries would further support this effort across industries. While these data-sharing arrangements have potential, they would require significant intergovernmental coordination and IT investment. A whole-of-government strategy aimed at increasing formalisation could incorporate these data-sharing initiatives.
In Peru, the PIT follows a schedular design, with separate taxation of capital and employment income. Income from dependent employees and self-employed not taxed under third category is taxed jointly under a progressive rate schedule. Actual business costs incurred are not tax-deductible, but self-employed entrepreneurs can deduct a presumptive deduction instead. Rental income (declared under category 1) and most other capital income (declared under category 2) is taxed at a rate of 5%. As in many countries, capital income declared under categories 1 and 2, as well as foreign income, is concentrated among higher-income taxpayers (see Figure 1.6).
Note: Data refer to the year 2021 in which 1 UIT was equal to S/ 4 400 (around USD 1 300). Note that natural persons may instead declare their business income in category 3 and accordingly pay tax within either the NRUS, RER, RMT, or general CIT regime. As such, the graph does not give a complete picture of the extent to which taxpayers in the upper income ranges in Peru earn capital income.
Source: SUNAT.
Foreign capital gains are added to labour income and taxed at progressive rates of up to 30% with certain notable exceptions. Foreign-sourced capital gains derived from the sale of securities are taxed at progressive PIT rates with a top PIT rate of 30%. However, foreign-sourced capital gains derived from the sale of securities in the integrated stock exchange (MILA), which comprises the stock exchanges of Chile, Colombia, Mexico and Peru, are taxed at a 6.25% rate, in line with Peruvian-sourced capital gains derived from the sale of securities. In addition, capital gains derived from the sale of securities sourced from another member country of the Andean Community are exempt from taxation in Peru in accordance with Decision 578.
Excessive schedularity reduces progressivity and creates opportunities for tax arbitrage. A main disadvantage of a schedular tax system is that it can reduce the progressivity of the PIT because income from different sources is not aggregated and taxed under a single progressive tax rate schedule. This also creates an incentive to obtain different types of income, each of which is taxed separately, rather than having just one type of income. It also encourages arbitrage through the reclassification of income to benefit from lower tax rates. The main advantage is that it allows capital income at the personal level to be taxed at a lower rate when the statutory CIT rate is high. It also implies that tax withholding at source can be treated as a final tax, which facilitates compliance and reduces compliance costs. However, this approach requires the extensive use of withholding mechanisms and third-party information reporting to limit evasion. The most common type of schedular income taxation in OECD countries is dual income taxation, where labour and pension incomes are taxed together at progressive tax rates, and different types of capital income (e.g. dividends, rent) are taxed together, typically at lower flat rates. Among 38 OECD countries, 8 use a comprehensive income tax system, 24 use a dual (or semi-dual) income tax system and 6 use another system (Hourani et al., 2023[38]).
In the short term, Peru could consider raising the tax rate applied to categories 1 and 2. In the medium term, it could transition to a dual progressive income tax. In the short term, there is scope to increase the taxes on dividends and capital gains. As the statutory and effective CIT rates are not particularly low, an increase in the rate from 5% to 10% would appear feasible. In the medium term, Peru could introduce a dual progressive income tax that taxes employment and capital income separately under their own progressive tax rate schedules. All capital income would be aggregated into a single tax base and subjected to a mildly progressive tax rate schedule, taking into account that equity income has already incurred CIT. This approach would strengthen vertical equity given that capital income is disproportionately concentrated in the upper part of the income distribution. A relatively low basic capital income tax allowance, for instance 0.5 UIT, could exempt a minimum level of savings income from taxation. A capital income tax reform would also provide an opportunity to align the tax treatment of domestic and foreign-sourced equity income, thereby reducing compliance costs for SUNAT as well as for financial intermediaries (see Chapter 5).
Peru could introduce a withholding tax on rental income. Following the amendment to the Income Tax Law, category 1 income will be taxed on a cash basis as of 1 December 2026, necessitating the introduction of a withholding mechanism. In the short term, Peru could consider requiring online platforms to withhold tax on rental income. Owners of properties that are let could be required to self-declare the rental income they receive. Over time, SUNAT could use the ownership information included in the fiscal cadastre for audit purposes and incentivise property owners to declare the rental income they have earned. Priority could be given first to strengthen the fiscal cadastre for the main cities and then it could be expanded to the entire country.
Note: Category 4 income refers to income from self-employed work while category 5 income is labour income of salaried workers. The combined rate is close to the rate observed for category 5 income because the weight of self-employed income among total income is low.
Source: OECD based on data from SUNAT.
Effective tax rates on labour income are particularly low for both dependent and self-employed workers. Information on combined effective tax rates across all income categories is not available. Currently, Peru has a basic PIT allowance of 7 UIT, meaning that taxpayers can deduct 7 UIT (around USD 11 000) when calculating taxable income that is taxed under the progressive PIT rate schedule. At 7 UIT, the PIT exemption threshold for employment income is high, which reduces the role of the PIT as a revenue raiser. This threshold is substantially higher than the minimum wage and only slightly below the average wage. According to data from SUNAT, more than 70% of formal workers earned less than 7 UIT in 2024. For taxpayers with income exceeding 7 UIT, effective rates are very low, except for higher incomes. For workers earning above S/ 102 000 (around USD 28 500), the effective PIT rate increases to 13.9% in the case of dependent workers and 5.7% for the self-employed (Figure 1.7). Ideally, effective rates should be computed including income from category 1, 2 and foreign sourced income, but this information is currently not available.
There is scope to reduce the basic PIT allowance. Reducing the basic PIT allowance from 7 UIT to, for instance, 5 UIT would raise the tax wedge for an average wage earner by around two percentage points, from 18.1% to 20.0%. This would only modestly affect workers with income below the average wage, as only a small proportion of their income would exceed the reduced threshold, if at all. Even after reducing the basic allowance by 2 UIT, Peru’s tax wedge would remain lower than, or similar to, that of several other countries in the region. This is particularly the case when mandatory private pension contributions in other LAC countries are included in the comparison. However, if the 3 UIT deduction for additional expenses is maintained, the revenue gain from reducing the basic tax allowance by 2 UIT is expected to be more limited. This is because some workers whose income exceeds the new 5 UIT PIT basic tax allowance would likely start claiming the expense deduction.
Measures to broaden the PIT base would improve horizontal equity and increase revenues. There may be scope to reduce the cap applicable to the 20% presumptive deduction for self-employed workers (category 4 income), which is currently set at 24 UIT (around USD 38 000). Alternatively, self-employed individuals facing higher labour costs can opt to be taxed under other business tax regimes within category 3. Additionally, unless the CTS returns to its original design and function, the tax exemption of severance pay should be eliminated. The CTS has effectively become part of regular salary and no longer serves a distinct social protection function; it should therefore be taxed as regular labour income. The CTS, as well as improvements to the design of the 3‑UIT deduction, are discussed in Chapter 3.
Peru has recently introduced a new special economic zones (SEZ) model that involves the private sector and provides a five-year CIT holiday for qualifying investment subject to compliance with substance and minimum investment requirements.6 Peru’s previous SEZ regime has been in place for almost four decades, but economic activity in its four operational zones (Zofratacna, ZED Paita, ZED Ilo and ZED Matarani) has remained very limited. Less than 3 000 workers are employed across the four zones, and exports from the zones account for only 0.1% of total exports (AZFA, 2025[39]; AZFA, 2024[40]). This is despite generous tax incentives under the previous regime, including an indefinite exemption from CIT. In 2025, Law 32 449 introduced a new model of Private Special Economic Zones (ZEEPs), under which privately operated zones benefit from a 0% CIT rate for the first five years, followed by progressively increasing reduced rates for further 20 years. As no ZEEP has yet been established and parts of the regime’s design are still being specified, Peru has an opportunity to refine the design before investment decisions are made and the rules might become more difficult to change.
Income-based tax incentives, such as those foreseen in the ZEEPs, have shown mixed results across countries and can involve significant revenue costs if they are poorly targeted or overly generous (Jenkins et al., 2025[41]; OECD, 2026[42]). They can also result in windfall gains for investors who would have invested even in the absence of the incentive. Expenditure-based incentives, such as accelerated depreciation or investment tax credits or allowances, are often recommended where they can achieve the intended policy objectives more efficiently or cost-efficiently (see Annex A). Where income-based incentives are used, the literature has identified a number of principles that can inform their design (IMF-OECD-UN-WB, 2015[43]; OECD, 2026[42]). The net benefit of SEZ regimes, even in countries where significant activity takes place in SEZs, will depend on the type of investment that is attracted, the spillovers that the activity in the zone generates for the domestic economy, and how the tax incentives in the zone are designed (Frick and Rodríguez-Pose, 2021[44]; World Bank, 2017[45]).
The CIT rate schedule in ZEEPs, including the tax holiday, is very generous, may be partly ineffective in attracting investors, and its interaction with international tax rules should be studied further. The regime provides a 0% CIT rate in the first five years of operation, followed by reduced rates for a further 20 years. For large multinational enterprises, low effective tax rates in Peru may trigger top up taxes in the countries where these MNEs are headquartered as a result of the Global Minimum Tax (OECD, 2026[46]). In such cases, Peru could forgo tax revenue without reducing the overall tax burden of the investor. At 25 years, the duration of the tax reduction may also be longer than the useful life of some of the investments made in the zones and, even in the final phase, the 15% rate remains well below the standard CIT rate. It would therefore be important for Peru to study the interaction between the international tax rules and the ZEEP design, which could involve considering the introduction of a Qualified Domestic Minimum Top-up Tax (QDMTT) or other domestic tax measures that would allow Peru to retain the top-up tax revenue. Such an analysis would be necessary because the extent to which these rules affect individual investors will depend on the size and structure of the MNEs that Peru attracts, the country in which these MNEs have their headquarters, as well as their economic substance in the country, including how much they invest and how much they spend on salaries, among other factors.
If income-based incentives continue to be used, a central question for the new ZEEP regime is whether it is designed to attract economic activity that would not otherwise occur in Peru, even under a reformed standard tax system. If firms that invest in ZEEPs would have invested regardless of the ZEEP regime, the revenue forgone would represent a net fiscal cost for the country without an offsetting economic gain. For the ZEEPs to succeed, the policy would have to be part of a broader strategy to address underlying investment barriers in the country, and the net benefit will depend on whether the activity in the zones is genuinely additional and generates sufficient spillovers to the domestic economy.
Although this strategy comes with its own risks, one approach to ensure additionality and limit the revenue cost could be to target the ZEEP regime more narrowly to industrial activities that are unlikely to be developed under Peru’s standard tax system. This could also prevent that domestic investors locate new investment primarily in ZEEPs.7 The law already excludes a number of activities, such as geographically mobile activities in accordance with BEPS Action 5, including financial, accounting and legal services, leasing, insurance and the exploitation of intellectual property rights. Extractive activities such as mining and fishing, among others, are excluded as well. A recently published decree8 specifies some additional excluded activities, such as the manufacturing of clothing or the processing of metals but also allows the Ministry of Foreign Trade and Tourism (MINCETUR) to modify these exclusions.9 The actual scope of eligible activities may therefore remain broad. Bringing activities where Peru is already competitive into the ZEEP regime would not be desirable. If Peru would want to stimulate investment in activities that are already present in the domestic economy, introducing additional expenditure-based incentives within the general CIT regime may be more appropriate than geographically limited income-based tax reductions. Designing the eligibility criteria for the ZEEP regime (industry targeting, minimum investment amounts, number of jobs created) involves trade-offs (OECD, 2026[42]), as criteria that are too restrictive may deter some investment and become complex to administer and enforce (see Chapter 6).
The private operator model alone is unlikely to overcome the structural investment barriers that limited the effectiveness of Peru’s previous SEZ regime. In Peru, the limited success of the previous regime has been linked to weak connectivity, infrastructure that was not adapted to larger scale investment, and limited access to relevant skills (MINCETUR, 2025[47]; OECD, 2026[48]). One rationale for the private operator model, and for extending the tax incentives to zone operators, is that they are responsible for developing and maintaining zone infrastructure, among other responsibilities. However, allowing operators to determine the location of zones is likely to result in zones being established in areas where infrastructure already exists and where competition with existing firms is strongest, for example close to the capital region. A decree published in April 202610 is likely to reinforce this pattern, as it prioritises locations with strong connectivity, access to energy, housing, health and education services, proximity to existing economic activity and the availability of skilled labour. While such locations may be best suited to attract investment, this weakens the case for extending generous tax incentives to zone operators on the grounds that they are expected to develop infrastructure.
The implementation of the ZEEP regime will require close monitoring, transparency and regular evaluation. It is important that the Ministry of Economy and Finance (MEF) and SUNAT remain closely involved in the administration and enforcement of the rules that apply to ZEEP businesses. A key area for enforcement is the interaction between ZEEPs and domestic businesses, to ensure that goods entering the domestic economy are properly taxed under the VAT and applicable import charges. The annual publication of information on beneficiaries, investment, employment and tax benefits, as foreseen in the law, provides a basis for assessing the regime. This would complement estimates of revenue forgone in the TE report (covering both income tax incentives, but also other tax reductions and exemptions) and regular evaluations examining whether ZEEPs generate additional investment and result in positive spillovers for the domestic economy.
Despite being intended to foster formalisation and growth, the multiplicity of business tax regimes has created arbitrage opportunities and notch thresholds that have the opposite effect. Three alternative special tax regimes were introduced alongside the general regime to reduce informality by lowering tax liabilities and simplifying compliance obligations. However, the design features of these special regimes have created an environment conducive to tax arbitrage and non-compliance. There are jump discontinuities in tax liability across eligibility thresholds. There is also evidence of bunching at the maximum turnover threshold and employee-count threshold to enter the RER regime, suggesting that businesses may be engaging in labour informality, underreporting of turnover, splitting businesses, or limiting growth in order to remain in this regime (IMF, 2022[49]; IMF, 2024[25]).
Following its introduction, a significant share of businesses in the general regime migrated to the MYPE RMT regime. When the MYPE RMT special regime was created in 2016, offering a reduced rate of 10% on the first 15 UIT of profits, the majority of businesses in the general regime left it to join the MYPE regime. This was contrary to the original objective of the RMT regime which was intended to serve as a stepping stone to the general regime for firms in the two pre-existing special regimes. In fact, in 2017, the number of businesses in the general regime reporting profits decreased by almost 300 000, while around 350 000 profit-reporting companies were registered in the RMT (see Figure 1.8). In 2024, only 14% of CIT taxpayers were in the general regime, yet it accounted for 92% of CIT revenues. In contrast, the RMT regime included 86% of CIT taxpayers but contributed only 8% of CIT revenues (IMF, 2022[49]; OECD, 2025[1]). A study conducted by the European Commission based on SUNAT data finds that businesses in the special regimes (NRUS, RER and RMT) have a probability of over 99% of remaining in the same regime the following year (European Union, 2025[50]).
The number of taxpayers registered in the microenterprise presumptive regime (NRUS) has increased steadily over time although only about one-third are actively making payments. The NRUS is accessible to natural persons who own a small business but excludes liberal professions. The NRUS presumptive tax replaces VAT, third category income tax and the Municipal Promotion tax. Businesses registered under the NRUS cannot issue invoices that entitle other business to claim a tax credit or deduct purchases from their taxable corporate profits. The fact that over two million natural persons are registered under this regime suggests that it could be an important tool for formalising small businesses (Figure 1.8). However, SUNAT statistics indicate that only 34% of the NRUS taxpayers made at least one payment under the regime in 2023, highlighting a significant compliance issue among micro-enterprises. Legislative proposals in Congress that exempt new businesses or certain activities from CIT as a tool to foster formalisation should be approached with caution, as they risk undermining incentives for formal employment.
Note: RMT refers to the SME tax regime (Régimen MYPE Tributario). RER refers to the Régimen Especial de Renta. NRUS refers to Nuevo Régimen Único Simplificado. The number of businesses in the general and RMT regimes refer only to those reporting positive profits in a given year. Note that NRUS is open to natural persons with a closely held business activity only, while the other three regimes are open to both natural persons and firms.
Source: SUNAT and Ministry of Economy and Finance of Peru.
The RER and MYPE regimes could be replaced with a regime subject to the standard 29.5% rate but with simplified accounting requirements, aligned with IMF recommendations. Firms in the RER with annual turnover below S/ 525 000 and less than 10 employees pay a 1.5% turnover tax and are subject to VAT. Firms with turnover below 1 700 UIT are eligible for the RMT regime, which taxes profits as in the general regime and requires standard accounting records. The IMF proposes replacing the RER and MYPE regimes with a new regime that is subject to the standard CIT rate of 29.5% but is assessed on a cash-flow basis rather than on an accrual basis (IMF, 2022[49]). This proposal has a number of advantages. Harmonising the rate and the base across these regimes reduces arbitrage opportunities and evasion incentives. Taxation on the basis of profits would encourage firms to declare their workers, unlike the current RER. Including enhanced deductions on the formal wage bill in the new regime would further incentivise labour formalisation. The possibility of implementing such a proposal should be explored, jointly with other measures focused on reducing the cost of formalisation. Furthermore, enhancing tax enforcement is essential. Without further improvements in tax enforcement, some taxpayers, particularly those currently under‑reporting income, may become fully informal to avoid a higher tax burden.
As noted previously, tax revenues from the mining sector have not kept pace with growth in mining value added and operating profits, despite record prices. This is an unexpected outcome, given that Peru’s sliding-scale royalty regime and the special mining tax are designed to ensure that tax revenues increase more than proportionally with prices and profitability. Based on the ratios of tax revenue to value added observed during past periods of high prices, tax revenues from mining sector profits (including income taxes and royalties) would be almost 1% of GDP higher than their current level. A range of factors may help to explain this discrepancy, including issues of non-compliance and avoidance.
The growing role of traders might be creating specific challenges for mining tax revenues in Peru. In recent years, producers have increasingly sold their minerals to domestic traders instead of directly exporting the minerals directly to the global market. The main trading companies purchase minerals on behalf of related entities domiciled in jurisdictions with territorial taxation systems. This type of business organisation may, possibly, create Base Erosion and Profit Shifting (BEPS) risks that narrow the domestic mineral tax base and reduce tax revenue and therefore warrant further investigation.
In recent years, VAT refunds claimed by trading companies have increased at a significantly faster pace than their sales, which may be contributing to reduced tax revenue collection from the mining sector. Almost all mining production in Peru is exported and therefore zero-rated for VAT. In practice, however, there is a chain of intermediaries between the mine and the exporter, and VAT is collected along this chain. The refunds requested by the exporter at the end of the chain appear to exceed the VAT collected along the chain. According to data provided by SUNAT, mineral sales by trading companies increased by 127% between 2016 and 2022, while VAT refunds rose by 240%. One possible explanation for this pattern is that certain intermediaries use fraudulent VAT invoices to legitimise illegal and informal production (Smith et al., 2024[51]).
Informal and illegal gold mining is widespread. It is estimated that 44% of the gold that is officially exported from Peru is mined informally or illegally totalling USD 7 billion, which is approximately 2.5% of Peru’s GDP (IPE, 2024[52]). Artisanal and small-scale (ASM) miners, most of whom operate informally or illegally, produce almost half of Peru’s annual gold production (ARM, 2024[53]). It should be noted that INEI, in coordination with the Ministry of Energy and Mines (MINEM) and the Geological, Mining and Metallurgical Institute (INGEMMET), have been tasked with conducting a national census of small-scale and artisanal mining. Additionally, a tax group has been established to provide training on compliance with their tax obligations, in coordination with the National Superintendency of Tax Administration (SUNAT), MINEM, and the miners’ association.
The special regime for smaller mining firms may incentivise firms to under-declare revenues in order to avoid a significantly higher tax burden. As defined by Law 27 651 and Supreme Decree 014-92, small mining firms are not subject to mining royalties or the special mining tax (IEM), and they can be taxed under the simplified business tax regimes, including the presumptive regimes (NRUS and RER. This could create incentives for business splitting, novel ownership arrangements, and under-reporting in order to reduce the tax liability on mining profits. A thorough assessment of whether mining firms should be excluded from the scope of the presumptive tax regime is therefore recommended.
To address the various challenges discussed above, increased enforcement must play a key role. Procedures could be strengthened and additional resources could be made available for monitoring and auditing the intermediaries in the mining VAT chain. This would help detect and penalise the use of fraudulent invoices that lead to excessive refunds, analyse BEPS risks and regularise informal and illegal production.
The VAT accounts for 38% of Peru’s tax revenues in 2023, but non-compliance remains high, representing over 3% of GDP (OECD, 2025[1]; SUNAT, 2024[3]). Significant fraud occurs through the use of fabricated invoices issued by inactive companies, which legitimate firms subsequently use to claim undue refunds. As previously mentioned, SUNAT has started to classify companies, granting advantages to those that are highly compliant while identifying inactive entities under the category ‘subjects without operative capacity’. However, the number of companies that have been identified to date under this category remains limited. Companies in this category are not authorised to issue invoices. Efforts to identify inactive companies issuing fraudulent invoices should be prioritised. SUNAT is also encouraged to strengthen its analysis of electronic invoices that are inconsistent with information reported in purchase and sales records.
VAT non-compliance may, in some cases, be linked to the presence of threshold-based “notches” in other parts of the tax system, which can create strong behavioural incentives for firms to underreport turnover. In particular, where eligibility for preferential regimes, such as the RER special regime or the microenterprise and SME labour regimes, is determined by reference to turnover ceilings, businesses operating near these thresholds may face significant discontinuities in their effective tax burden. Such discontinuities can encourage strategic behaviour, including the deliberate understatement of sales, in order to remain below the relevant thresholds and retain access to a more favourable tax treatment. From a tax policy perspective, these interactions underline the importance of assessing the broader design of the tax system when analysing VAT compliance gaps.
In the medium-term Peru could evaluate alternative policy instruments to achieve similar objectives currently pursued through VAT exemptions on agricultural products. Currently, agricultural products and their inputs are exempt from VAT. Such exemptions are often used to pursue social objectives. However, alternative policy instruments, such as targeted cash transfers to vulnerable households and direct expenditure programmes, may achieve these objectives with fewer distortions. VAT exemptions disrupt the VAT chain, undermining its self-enforcing properties, which are particularly important given Peru’s context of low voluntary compliance. In the medium term, and only once fraudulent VAT invoicing has been brought under control, Peru could consider eliminating VAT exemptions and levying the standard VAT rate, while compensating low-income households for the VAT they have paid. This reform would require strengthened coordination with social assistance programmes to ensure the effective identification of eligible households.
The VAT treatment of digital services and intangible assets should be kept under continuous review to ensure alignment with evolving international standards and emerging business practices. It is important to monitor the implementation and performance of the VAT collection model applicable to digital services and intangible assets, while also considering measures to ensure effective VAT collection on imports of low-value goods. Strengthening the regulatory framework in this area can help reduce uncertainty, enhance compliance, align the VAT system with broader international tax policy developments, and mitigate risks of tax evasion and fraud.
Excise tax revenue has decreased significantly over recent decades as a percentage of GDP driven by a decline in fuel excise revenues. Excise taxes raised 2.0% of GDP in 2004, compared to just 0.9% of GDP in 2024. The decline in fuel excise tax revenue is even more pronounced: fuel excise tax revenues accounted for 1.4% of GDP in 2004, but only 0.3% of GDP in 2024. Peru is advised to gradually align fuel taxation with GHG emissions, either by introducing a carbon tax to complement the existing excise on fuels or by implementing a structural reform that directly links fuel taxation to GHG emissions as has been recommended by the World Bank (World Bank, 2025[21]). However, this reform should only be introduced once the recent increase in energy prices has subsided. It is also recommended that Peru explores ways to increase its excise tax revenues, including introducing health taxes, particularly on new tobacco and nicotine products, as well as increasing existing taxes on cigarettes and online gambling. As part of this effort, it is important to assess whether current tax rates are adequate to achieve both revenue and behavioral objectives, review the appropriateness of existing tax structures across different products, and evaluate the treatment of emerging products and evolving consumption patterns. Finally, enhancing compliance and reducing illicit trade would further improve the effectiveness of the excise tax system and strengthen its contribution to Peru’s revenue base.
Source: OECD Revenue Statistics 2026.
Electronic cigarettes and nicotine pouches are regulated in Peru but are not subject to an excise tax. In line with the objectives of protecting population’s health, preventing smoking initiation and nicotine addiction, especially among younger generations, the WHO recommends either banning new tobacco, nicotine, and related products or regulating them strictly and taxing them with an excise tax (WHO, 2025[54]). In Peru, Law No. 32 159 regulates activities related to the consumption of tobacco, nicotine and related products. Although electronic cigarettes and nicotine pouches may be legally marketed and consumed in the country, they are not subject to an excise tax. In line with WHO recommendations, it is advisable to levy an excise tax on all tobacco, nicotine and related products, with the objective of reducing their affordability and preventing initiation. The situation of electronic cigarettes in Peru is particularly concerning as their use already exceeds that of tobacco products among secondary education students (Government of Peru, 2025[55]).The WHO recommends taxing electronic cigarettes irrespective of its nicotine content, based on available evidence indicating that some products may contain nicotine even when not labelled as such, in addition to containing other toxic substances that pose health risks and contributing to smoking renormalization (World Health Organization, 2021[56]). Moreover, it would significantly facilitate and simplify tax administration, as verifying the presence of nicotine in these products requires specialised laboratory capacities. The WHO further advises taxing the devices, in addition to the liquids, where administrative capacity allows to do so.
Subnational governments in Peru only raise a small proportion of the revenue needed to finance their activities, which highlights weaknesses in local property taxation. Local district governments in Peru are only able to raise around 10% of the revenue required to cover their expenditure. This percentage is lower than in most peer countries, making Peruvian local governments especially dependent on central government transfers (IMF, 2020[57]; IMF, 2025[12]). In OECD countries, recurrent taxes on immovable property are the main source of revenue for local governments. However, property tax revenues collected by subnational governments in Peru amounted to just 0.3% of GDP in 2023, which is lower than in almost every other country in LAC and substantially lower than in OECD countries (OECD, 2025[9]).
A comprehensive review of the regulatory framework of the municipal tax system would be welcomed. Much of the design of the municipal tax system is based on economic, fiscal, and institutional conditions that have changed significantly in recent decades. The review should assess the performance of the main municipal taxes, identify their structural limitations, and adapt their design to align with international trends and the best practices implemented in other countries in the region, in order to strengthen the financial autonomy of local governments. In addition, measures should be promoted to broaden the municipal tax base and improve collection efficiency by identifying and evaluating areas for improvement within the current system. Particular attention should be given to reviewing tax exemptions, deductions and other preferential treatments that may reduce revenue-raising capacity without a sound technical justification. This would help strengthen municipal fiscal sustainability, increase own-source revenues, and enhance the capacity of municipalities to finance local public goods and services.
Strengthening property tax collection could improve the quality of local public services and improve tax morale in Peru. One of the main challenges to achieving sustainable fiscal consolidation at the local level is enhancing own-source revenues and ensuring the proper management of subnational debt. The public services provided by subnational governments are often the most visible benefit that citizens receive in exchange for the taxes they pay. Persistent weaknesses in the quality of public services at the subnational level appear to be linked to low tax morale in Peru (OECD, 2025[9]). Strengthening local recurrent taxes on immovable property would provide subnational governments with a stable source of revenue, supporting improvements in public service quality. In the long term, success in this area could contribute to enhancing tax morale and voluntary compliance.
Moving towards a regularly updated national property cadastre could strengthen local property tax collection. A key administrative deficiency impeding the collection of recurrent taxes on immovable property in Peru is the lack of good quality property cadastres. In fact, in 2023, many local districts lacked a property cadastre, which limited their ability to identify taxpayers liable for property taxes (INEI, 2022[58]). Furthermore, the majority of districts with property cadastres do not update them regularly, resulting in reference values for property taxation that are far below current market values. Investing in the development of a national property cadastre that is regularly updated in line with market values would enhance property tax collection. A national cadastre is preferable because many local governments lack the necessary resources and technical capacity to carry out this task. According to the INEI, cadastres were the third most requested form of technical assistance from local governments, with 49% requesting it (INEI, 2022[58]). It should be noted that Decree No. 1365 sets out provisions for the development and consolidation of the National Urban Cadastre. The MEF’s ongoing efforts to provide municipalities with technical assistance in creating a common cadastre should continue and eventually be expanded to include all municipalities, with the aim of forming a single national cadastre.
Investing in efforts to formalise property titles could support the development of the cadastre. As of 2024, around 52% of rural properties lacked a formal legal title, meaning they could not be included in the cadastre (CEPES, 2023[59]). Furthermore, in urban areas, many formal titles no longer reflect the current use of land. In particular, properties are often transferred, demolished and redeveloped into high-rise buildings without the property register being updated accordingly (Mateo Arias, 2023[60]). This further complicates efforts to create a national cadastre based on formal title information. From the property owner's perspective, the administrative costs of formalising property ownership will strengthen property rights and facilitate the sale of the property over time. This should incentivise property owners to voluntarily contribute to updating the cadastre’s information.
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← 1. 2021 is the most recent year in which non-compliance data for both VAT and CIT is available. The conclusion that non-compliance in these two taxes alone is reducing the tax-to-GDP ratio by several percentage points also holds outside of the Covid years. For instance, in 2019, the tax-to-GDP ratio of Peru would have been 24.2% if not for this non-compliance, according to the SUNAT’s estimates.
← 2. The mining sector is subject not only to corporate income tax and mining royalties, but also to the Special Mining Tax, the Special Mining Levy, and a contractual royalty, which is not administered by SUNAT, paid by some companies.
← 3. Chapter 3 provides a technical discussion of possible revisions to the benchmark tax system used to define tax expenditures.
← 4. The counterfactual effective CIT rate in Figure 1.5 for a particular sector may be substantially lower than the 29.5% CIT standard rate in the general regime if businesses in a given sector are able to benefit from significant expenditure-based CIT TEs such as enhanced deductions..
← 5. 1 UIT is equal to S/ 5 500 in 2026 (approximately USD 1 600). The value of the UIT is updated every year, and informs many thresholds throughout Peruvian tax law (such as eligibility thresholds for the special regimes, brackets in the taxation of labour income, and deduction limitations and eligibility conditions in TEs).
← 6. See Law 32 449 and Supreme Decree 005-2026-MINCETUR.
← 7. The rules allow domestic investors to invest in ZEEPs only if they undertake an activity that they have not previously carried out in the national economy (Supreme Decree 005-2026-MINCETUR, Article 21.1).
← 8. Supreme Decree 005-2026-MINCETUR, Annex 1.
← 9. Article 4 in Law 32 499 defines broadly what type of activities are permitted, but it does not include a detailed list of activities (e.g., which type of manufacturing would be permitted).
← 10. Supreme Decree 005-2026-MINCETUR.