At around 18% of labour cost, Peru’s tax wedge at the average wage level is not particularly high compared to that of its regional peers. A large proportion of formal sector workers do not effectively pay personal income tax (PIT) because of the high basic tax allowance. Reducing the basic allowance from 7 to 5 UIT would reinforce the role of the PIT while only modestly affecting the average tax wedge. However, the tax wedge does not fully reflect the total cost of formal employment in the country. Mandatory bonuses, severance savings and profit sharing can increase the cost of formally hiring a minimum wage worker under the general regime to around 150% of the base salary. At the same time, Peru operates several reduced labour tax regimes for smaller firms, substantially lowering the tax wedge and overall non-wage labour costs. Despite the tax wedge being close to zero under the micro-enterprise labour regime, almost 90% of workers in micro-enterprises remain informal. While reducing payroll taxes for low‑income workers can contribute to greater formalisation, the impact on informality is likely to be limited in the absence of complementary measures that address the broader structural drivers of informal employment. This chapter examines the impact of reducing the basic tax allowance as well as of alternative reform measures that could contribute to financing health insurance on the tax wedge.
OECD Tax Policy Reviews: Peru 2026
Abstract
At 18.1%, the tax wedge for the average-wage formal worker in Peru is not particularly high if compared to the tax wedge in other countries in the region and the OECD average (Figure 4.1). The labour tax wedge measures the ratio between personal income taxes (PIT) and employee and employer social security contributions (SSCs) and the total labour cost faced by the employer, where total labour costs are the sum of gross wages and employer SSCs. In Peru, the largest contributors to the tax wedge for an average wage earner in the general regime are pension (56% of the tax wedge) and health contributions (39%), while the PIT plays only a minor role (5%). Employer social security contributions finance health care (9% of gross wages) and employees contribute 13% towards pensions if they opt for the public system. Workers who decide to enrol in the private pension system pay a similar rate in private pension contributions.
As in many countries in the region, the earnings of the average wage earner largely fall within the basic PIT allowance. In the general regime, the PIT only accounts for less than 1% of labour costs for the average-wage earner in Peru.1 The tax wedge simulations in Figure 4.1 do not account for the 3 UIT deduction (on top of the 7 UIT basic PIT allowance) to which most taxpayers in Peru have access. This deduction covers specific personal expenses, which need to be documented with electronic receipts, such as personal rent payments, restaurant expenses or social contributions for domestic workers. An average-wage salaried worker who claims the 3 UIT deduction would typically not have any PIT liability from their labour income. Tax wedge simulations are based on a modelled hypothetical taxpayer at a certain income level who fully declares all income and does not make use of any additional tax deductions. The estimates should therefore not be interpreted as the empirical effective tax rate workers in Peru face.
Note: The labour tax wedge measures the ratio between PIT and employee and employer SSCs and the total labour cost faced by the employer. The tax wedge is expressed in % of labour cost and calculated for single taxpayers without children at average earnings. Values refer to 2025 (OECD Members) and 2023 (Brazil). Non-tax compulsory payments (NTCPs) in Peru include contributions to the mandatory severance savings accounts (CTS) accounts. Results for Brazil are based on OECD calculations. The calculations focus on a worker affiliated to the public pension system (ONP) in Peru with pension contributions treated as employee SSCs. Workers affiliated to the private pension system (AFP) pay contributions to private funds, which would be classified as NTCPs rather than SSCs. The AFP contribution rate is similar to the 13% ONP rate, so that the NTCP-inclusive tax wedge does not differ significantly between the two systems. The data for Peru refer to the earnings of workers within the formal sector. The average worker’s wage was calculated based on microdata from the national household surveys.
The tax wedge is almost constant between the minimum and average wage, with the highest tax wedge progressivity observed slightly above the average wage. The 7 UIT basic PIT allowance corresponds to roughly 90% of the average wage, which means that workers earning the average wage face almost no PIT liability in Peru. For these workers, the tax wedge is made up entirely of social security contributions, which are levied at flat contribution rates that do not increase with income. The tax progressivity indicator measures how much a country’s tax wedge changes, within a specific earnings interval, for each 1 pp. increase in the gross wage (e.g., from 50% to 51% of the average wage). In OECD countries, the highest labour income tax progressivity can typically be observed significantly below the average wage where earnings start exceeding the PIT exemption bracket (Figure 4.2). In Peru, the highest labour income tax progressivity is found between 100% and 133% of the average wage. In this earnings interval, the labour tax wedge increases by 0.05 pp. for each increase in the gross wage by 1 pp. (e.g., from 110% to 111% of the average wage). For higher earnings levels, labour income tax progressivity in Peru is more similar to the OECD average as the tax burden gradually increases with the progressive PIT rate schedule at incomes that exceed the basic tax allowance. The overall lower progressivity in Peru compared to the OECD average can therefore be explained primarily by the low progressivity of the system below the average wage. This low progressivity results in a muted rate of increase in the tax wedge until relatively high earnings levels. For example, a worker whose income lies at 167% the average wage would face a tax wedge of 21.3% under Peru’s regular regime, still close to the tax wedge that applies to an average wage worker (18.1%).
Note: Indicator calculated for a single formal worker without children. Earnings intervals on the x-axis represent gross earnings multiples in % of the average wage. The progressivity indicator defined as the difference between the tax wedge in percentage points at the upper and lower end up the interval, scaled by size of the earnings interval. Estimates refer to 2023 for Peru and 2025 for the OECD average.
Source: OECD (2026[1]) and OECD Taxing Wages models for Peru.
Applying an extended definition of the tax wedge that incorporates non‑tax compulsory payments (NTCPs) increases the tax wedge for the average wage formal worker from 18.1% to 23.9%, reflecting the inclusion of the CTS. Nevertheless, this broader measure does not alter the overall assessment that the tax wedge remains relatively moderate in international comparison. NTCPs are sometimes included in the tax wedge to improve the comparability across countries because some countries levy compulsory contributions that are paid to private funds rather than to the government (OECD, 2026[2]). In Chile, Colombia or Mexico, for example, compulsory pension contributions paid to private pension funds are classified as NTCPs.2 If these payments were included, the labour tax wedge in Peru would rise to 23.9%, remaining lower than the NTCP-inclusive labour tax wedge in Mexico (29.7%) and broadly similar to that observed in Chile (22.7%). Whether the CTS, in its current form, should still be classified as a NTCP may be questioned, given workers can freely withdraw the funds at any time. The OECD defines NTCPs as “requited and unrequited compulsory payments to privately managed funds, welfare agencies or social insurance schemes outside general governments and to public enterprises” (OECD, 2026[2]).
Lowering the basic PIT allowance from 7 UIT to 5 UIT would raise the tax wedge for an average wage earner by around two percentage points, from 18.1% to 20.0% (Figure 4.3). A reduction in the basic PIT allowance by 2 UIT would effectively shift down all PIT bracket thresholds by the same amount. For example, the 14% marginal PIT rate would apply above an income of 10 UIT instead of 12 UIT. This reform would result in the largest increase in the tax wedge for gross incomes around the average wage, where the income is sufficiently high so that the 2 UIT increase in taxable income would be fully taxed at the 8% marginal rate. The reform would have only a modest effect on workers below the average wage (e.g., at 67% of the average wage), as only a share of their income would exceed the 5 UIT basic tax allowance. For higher income earners, the relative impact would be smaller because the basic PIT allowance accounts for a relatively small share of their taxable income: the increase in PIT liability, as a share of total PIT liability, would be smaller for higher income earners and the additional PIT payment would be divided by a much higher labour cost. The tax wedge of a minimum wage worker would not change at all in the modelled scenarios, as minimum wage income is less than all the assumed exemption thresholds.
Note: Tax wedge in 2023 as % of labour cost for a single taxpayer without children, shown at the minimum wage and at 67%, 100%, 167%, and 300% of the average wage. Simulations reduce the PIT allowance from 7 UIT (current) to lower levels.
Source: OECD Taxing Wages models for Peru.
Even after reducing the basic allowance by 2 UIT, Peru’s tax wedge would remain lower than, or similar to, that of other countries in the region. This is particularly the case once mandatory private pension contributions in other LAC countries are taken into account. However, the revenue impact of such a reform could be more limited than a mechanical calculation suggests, as some taxpayers newly liable for PIT would likely start claiming the additional 3 UIT tax deduction for documented expenses on expenditure items such as rent, restaurants, medical services and domestic worker contributions.
Focusing narrowly on the tax wedge can misrepresent the full cost of formal employment in Peru. A number of additional mandatory payments can push the cost of hiring a minimum wage worker above 150% of the statutory minimum wage. These payments include two bonuses equivalent to one monthly salary each, a family allowance, and mandatory profit sharing for firms above a certain size. Because these payments go directly to the worker rather than to the government or a private fund, they do not enter the tax wedge calculation,3 but they nonetheless increase the labour cost faced by the employer. In other words, the total cost of hiring in Peru can be similar to that in countries with a significantly higher tax wedge and focusing narrowly on the tax wedge would obscure the impact of these payments on the cost of hiring formal workers. The gap between the statutory minimum wage and the actual labour cost is particularly relevant around the minimum wage, where employers cannot adjust the gross salary to absorb these additional costs. At the minimum wage in Peru, the total cost of all mandatory payments an employer must make in the general regime on top of the base salary amounts to around 33.4% of total labour cost (or 50.2% of the minimum wage, Figure 4.4) while the combined employer-employee tax wedge would only stand at 17.3% of total labour cost (or 22.0% of the minimum wage).
Reducing the total cost of formal employment requires looking beyond the standard SSC and PIT rates and would, very likely, involve changes to certain non-tax labour charges. SSCs cannot easily be reduced because the social protection system in Peru faces significant financing challenges (OECD, 2025[3]; OECD, 2025[4]), which reductions in SSCs would only exacerbate.4 The PIT is also not available as a lever because most workers at or below the average wage do not pay the tax (Figure 4.1) and, in fact, it would be more desirable to increase the scope of the PIT (see Chapter 5). The remaining policy levers therefore lie in non-wage mandatory benefits for workers, although reducing the generosity of these benefits would in many cases come with reductions in incomes of workers who are already formal and windfall gains for their employers, at least in the short term.
One factor contributing to non-wage, non-tax labour costs in Peru is the requirement for profit sharing. The requirement also creates a disincentive to hire formal workers due to the 20-worker threshold. Firms employing more than 20 workers are required to distribute between 5% and 10% of their pre-tax profits to their workers, with the applicable rate varying across sectors. Because the obligation applies to the entire workforce once the threshold is exceeded, the marginal cost of hiring the 21st formal worker extends beyond that worker’s salary and includes the additional profit-sharing payments triggered for all registered employees (Figure 4.7). This makes the 20-employee threshold a significant barrier to firm growth and an incentive to hire workers informally. Available evidence suggests that firms tend to bunch just below the threshold to avoid triggering the obligation, while firms above the threshold reduce investment and substitute permanent workers with temporary workers (Tolentino, 2021[5]). These observations demonstrate that, beyond the cost of formal hiring itself, the way a policy is designed can create significant additional distortions, including incentives to hire informally.
Any reform of Peru’s profit-sharing rate must strike a balance between reducing formal hiring disincentives and protecting workers’ incomes. The profit-sharing requirement is established in Peru’s Constitution, but the applicable rate is determined by Congress and could, in principle, be changed through legislative action. Although a lower rate would reduce the cost of hiring formal employees (especially around the 20-employee threshold), a lower rate would also amount to an income reduction for employees who are currently employed in formal, profitable firms with more than 20 employees. Any lowering of the profit-sharing rate or other benefits that is implemented with the goal to incentivise formal hiring would require, as a pre-condition, better enforcement as firms employing informal workers would otherwise still prefer to hire informally, even if labour costs are lower (see Chapter 1).
Peru could consider an alternative approach, whereby the profit‑sharing requirement is determined by a turnover threshold rather than the current threshold of 20 employees. Under a turnover-based threshold, firms would still face increased labour costs as they grow and exceed the threshold. However, this increase would no longer be directly tied to the number of formal employees, which would reduce the disincentive to hire formal workers.
Another option would be to redesign the system so that the profit-sharing rate gradually increases either with the number of workers or with turnover, depending on the system used. Instead of lowering the profit-sharing rate for all firms, the rate could start at a low initial level and rise progressively to the current rate. This design could reduce the disincentive effects associated with the current design of the profit-sharing requirement.
Note: Micro-enterprise and SME refer to the REMYPE regimes administered by the Ministry of Labour (MTPE). The graphs show SME and general regime estimates for a business with > 20 employees, i.e. the profit-sharing obligation applies. The mandatory profit sharing’s contribution to labour cost assumes a 30% payroll-to-revenue ratio (before accounting for contributions and levies), a 20% profit margin (before accounting for contributions and levies) and a business in which all workers earn the minimum wage. A profit-sharing rate of 8% is applied in the first three regimes and a 7.5% rate in the agriculture regime. Estimates with at least one dependent child, i.e., the family allowance must be paid. The family allowance increases the amount on which health contributions and contributions to the severance savings accounts (CTS) need to be paid. Health contributions in the agriculture regime are assumed to be 6% although these are scheduled to increase to 9% in 2029. The higher rate already applies to larger agricultural firms.
Source: OECD based on information submitted by the Ministry of Economy and Finance and the Ministry of Labour of Peru.
Severance account contributions are another labour charge that in practice functions more as a salary component than as an insurance mechanism. The “Compensación por Tiempo de Servicios” (CTS) is a mandatory provision that adds to the cost of formal employment. Employers are required to deposit an amount equivalent to roughly one monthly salary per year into these accounts, which were originally intended to support workers during periods of unemployment. Previously, workers were required to maintain a minimum balance equivalent to four monthly wages in these accounts, but this restriction has since been lifted. As workers can now withdraw the full balance at any time, the CTS effectively operates as a salary component rather than as a precautionary savings scheme. For a minimum wage worker hired under the general regime, the employer contribution to the CTS amounts to 10-11% of the statutory minimum wage (Figure 4.4).
Reforming the CTS is likely to be challenging and may require adjustments to wages, since workers view these payments as an integral part of their regular income. A reduction in the CTS rate without a corresponding adjustment in gross wages would, at least in the short term, reduce the take-home pay of formal workers. At the same time, employers could benefit from a windfall gain. Evidence from Colombia suggests that a large share of severance savings account contributions is effectively borne by workers through lower wages. Kugler (2005[6]) finds that 60-80% of employer contributions were shifted onto employees in this way. If similar labour market dynamics prevail in Peru, a reduction in the CTS would justify an increase in gross wages, consistent with both the Colombian experience and expected medium-term market adjustments. To avoid a short-term decline in take-home pay for existing formal workers, a mechanical adjustment of gross wages could be implemented if the CTS is reduced or phased out. This would help ensure that the reduction in employer labour costs (aimed at stimulating formal hiring) applies primarily to new hires rather than to already formal workers.
The exemption of the CTS from both PIT and SSCs can be considered a regressive tax expenditure. If the CTS cannot be reformed directly, given its role as a de facto salary component, there are arguments for treating it as regular wage income going forward. Because the CTS is calculated as a percentage of wages, exempting it from taxation results in larger gains, both in absolute and relative terms, for higher earners, i.e., it reduces the PIT base in a regressive manner. The original rationale for its preferential tax treatment was that the CTS provided income support during periods of unemployment, but this rationale no longer holds if workers can access the funds at any time.
If benefits such as the CTS are maintained in their current form, there may be a case for subjecting them to health contributions and, over time, to PIT and pension SSCs to broaden the tax base. At present, only around 73% of total labour cost is subject to SSCs and around 85-87% is subject to PIT under the general regime. The CTS is exempt from both PIT and SSCs, while bonus payments are exempt from SSCs but subject to PIT (Table 4.1). Over the longer term, there is a case for broadening the SSC base to gradually include all payments that are effectively part of an employee’s salary, including the biannual bonus and the CTS (Table 4.2). If there is a need to generate additional revenues for financing the social protection system, Peru could consider broadening the SSC base before increasing any statutory rates, such as the 9% contribution rate for health or the 13% rate for pensions.
A possible starting point for base broadening reforms could be to transfer the health contributions on the bi-annual bonus to EsSalud, as well as to levy health contributions on the CTS. Currently, employers pay the health contributions that would otherwise apply to the bi-annual bonus (gratificaciones), amounting to 9% of the bonus, directly to workers as an additional bonus payment rather than to EsSalud (Table 4.1). Redirecting these contributions to EsSalud would increase the tax wedge but not labour costs, as health contributions on the bonus are already paid to workers in the form of an extra bonus. The policy that health contributions on the bonuses are not transferred to EsSalud had originally been introduced as a temporary measure but has since become permanent. If combined with a reduction in the basic allowance from 7 UIT to 5 UIT and the introduction of health contributions on CTS payments, these three reform measures would increase the tax wedge for an average wage earner in Peru’s general regime from 18.1% to 21.6%. (Table 4.2). While these measures would increase the tax wedge, they arguably have a lower impact on formalisation incentives if the additional revenues for EsSalud are used to improve the quality of social protection received by formal workers.
Note: *Additional payment received by the worker because employer is exempt from health contributions on bonus payments (gratificaciones).
Source: OECD based on the legal provisions in place in Peru.
Note: Simulations assume that the reforms have no impact on the gross salary. The table presents combined reform scenarios, i.e., the final row corresponds to a scenario in which all reforms are implemented simultaneously. Simulations for a worker affiliated to EsSalud. *The health contributions on the bonus (9% of the bonus) are currently transferred to workers as an additional bonus (Law 30 334, Art. 4). The reform scenario hence does not increase labour cost, but it increases the tax wedge.
Source: OECD Taxing Wages models for Peru.
Any measures designed to broaden the PIT and SSC bases should be implemented in a way that minimises the impact on the tax wedge, total labour costs and, consequently, incentives to hire formal sector workers. Therefore, a gradual implementation of base broadening reforms may be warranted. In the short term, maintaining the exemption of bonus payments and the CTS from pension SSCs could help prevent increases in the tax wedge at lower income levels, particularly if the basic PIT allowance is reduced to 5 UIT (see Table 4.2 and Table 4.3). In the medium term, however, bonus payments and the CTS could be brought within the scope of pension contributions. This would require careful sequencing, as implementing all the discussed measures together would increase the tax wedge from 18.1% to 24.9% (see Table 4.2).
However, there are strong arguments for prioritising base‑broadening measures over any increases in PIT and SSC rates. This means that, if there is a need to generate additional financing for the health or pension scheme, the PIT and SSC bases could be broadened through the measures presented in Table 4.2 and Table 4.3 before any changes are made to the rate schedules that are currently in place (e.g., increasing the 9% health contribution rate to 10%).
Note: Simulations assume that the reforms have no impact on the gross salary. Each reform scenario is modelled independently, keeping the rest of the system unchanged. Simulations for a worker affiliated to EsSalud. *The health contributions on the bonus (9% of the bonus) are currently transferred to workers as an additional bonus (Law 30 334, Art. 4). The reform scenario hence does not increase labour cost, but it increases the tax wedge.
Source: OECD Taxing Wages models for Peru.
Self-employed workers face a significantly lower tax wedge than dependent employees because pension and health contributions are voluntary rather than compulsory. Income from independent work (fourth category income) is subject to the same progressive PIT rate schedule as dependent employment income; however, self-employed workers benefit from a flat deduction of 20% of gross income before the standard allowance of 7 UIT is applied.5 While presumptive cost deductions for small self-employed workers are standard practice, the current cap of 24 UIT in Peru (around EUR 33 500) is relatively high. As a result, self-employed workers with actual costs below 20% face a lower tax wedge than the one shown in Figure 4.6. Additionally, there are no mandatory health contributions for the self-employed. Self-employed workers can choose to join the general health insurance scheme (EsSalud) and pay standard contribution rates or, if their income is low, access the subsidised non-contributory scheme (SIS). Pension contributions are also voluntary at present.6 The tax wedge for self‑employed workers therefore remains significantly below that faced by dependent employees at comparable income levels, with implications for both labour market neutrality and the financing of social protection systems.
Peru also offers a number of reduced labour tax regimes for smaller firms that significantly lower non-wage labour costs. Businesses up to a turnover threshold of 150 UIT (around EUR 210 000) can access the micro-enterprise labour regime (i.e., contributions for workers they hire are determined according to the micro-enterprise regime’s rules) with significantly reduced social contribution rates and non-wage labour costs (Figure 4.4, Figure 4.6). For example, the regime exempts employers from bonus payments, the CTS and mandatory profit sharing. In addition, the standard employer health contribution of 9% of wages, which gives access to the public health insurance system EsSalud, is replaced by a low presumptive amount, which gives workers access to the SIS health care scheme instead. The small and medium enterprise (SME) labour tax regime levies regular health contributions at 9% of the gross salary but reduces bonus payments to half a monthly salary (from two full salaries per year) and the CTS to 15 daily wages per year (roughly half of the amount that applies under the general regime).
As a result, the total cost of hiring a minimum wage worker varies depending on the labour regime under which a firm operates. It is around 101% of the statutory minimum wage under the micro-enterprise regime, 126% under the SME regime and 150% of the minimum wage under the general regime. The tax wedge for an average wage worker stands at 1.3% in the micro-enterprise regime, compared to 18.1% in the general regime. Because the lower non-wage costs under the SME regime result in lower total labour costs, the tax wedge under the SME regime is higher (19.4%) than under the general regime (Figure 4.6) per unit of labour cost. This can be explained by the lower bonus and CTS payments in the SME regime and the fact that bonuses and CTS are exempt from SSCs. Because total labour costs are lower, the tax and SSC liabilities, which are the same under the SME and general regime, will make up a larger share of the total labour cost, hence leading to a slightly higher tax wedge.
Reduced health contributions apply to employers under Peru’s agricultural labour regime. However, employers are required to pay an additional bonus equivalent to 30% of the minimum wage to workers hired under this regime. Until 2028, the agricultural regime reduces health contributions paid by employers in small agricultural firms from 9% to 6%. However, due to the additional bonus payment specific to the agriculture sector, the total labour cost for a minimum wage earner exceeds the labour cost that applies under the general regime (see Figure 4.4). The labour cost of hiring a minimum wage worker under the agricultural regime is more than 76% higher than the statutory minimum wage. At the same time, the tax wedge is lower in the agricultural regime because the mandatory bonus (30% of the minimum wage) is neither a tax nor a social contribution. The mandatory bonus is therefore not included in the numerator of the tax wedge indicator while it does increase labour costs (the denominator). This results in a lower a tax wedge (Figure 4.6). This example further demonstrates why focusing narrowly on the tax wedge does not provide a complete picture of the cost of formal work in Peru.
The fact that labour costs vary significantly with firm size creates disincentives for firms to grow. The large gap in the tax wedge between the micro-enterprise regime and the general and SME regimes could create incentives for firms to operate and hire only partially within the formal economy. A firm crossing the 150 UIT threshold (i.e. moving from the micro-enterprise into the SME regime) that employs formal minimum wage workers can face an immediate increase in the labour cost per worker of around 25% of their base salary (Figure 4.7). The large gap in the labour costs between regimes could also encourage firms to operate, at least partially, in the informal economy and/ or pay part of the salary informally. It could have other unintended consequences, such as firms splitting up to continue to qualify for the more favourable regimes (rather than growing a single business) if no rules are in place to prevent such a behaviour.
There is significant scope to streamline the design and administration of the labour and business tax regimes. The business and labour tax regimes (i.e., the regime that applies to the workers hired by the business) are also not aligned in terms of thresholds and in terms of how they are administered (Figure 4.5). Firms who fall under the micro-enterprise regime for labour tax purposes can be taxed for business tax purposes under either the NRUS, RER or RMT regimes. Firms have to apply for the labour and business tax regimes separately as the labour tax regimes are administered by the Ministry of Labour (MTPE) and the business tax regimes are administered by Peru’s tax administration (SUNAT). Over the longer term, Peru could aim at one single regime that defines both labour and business tax rules for SMEs.
While the eligibility threshold for the micro-enterprise labour regime seems high, it will likely only be possible to reduce it gradually as part of a longer-term strategy. A longer-term formalisation strategy could include, for example, reforms that mitigate the increase in labour cost when a firm migrates from the micro-enterprise to the SME regime. This could then allow Peru to somewhat reduce the eligibility threshold for the micro-enterprise regime and bring it closer to the threshold that applies for the current RER regime.
Note: The labour tax regimes correspond to the regimes for which the tax wedge is modelled in this chapter. These regimes apply to businesses with turnover below a threshold that hire formal workers. The 150 UIT threshold corresponds to around EUR 210 000 in 2026 exchange rates.
Source: OECD based on tax legislation in Peru.
Nonetheless, as highlighted in previous chapters, reducing labour informality requires more than simply lowering the costs of formalisation; it calls for a comprehensive, whole-of-government approach. This strategy needs to also focus on increasing the benefits of operating formally and strengthening the enforcement of both tax and labour regulations. It should also include reforms to boost productivity, supported by strong education and skills systems. Ultimately, success also depends on high institutional quality, respect for the rule of law, and well-functioning public institutions.
Note: Gross earnings are defined such that they are comparable across regimes (i.e., the gross salary including bonuses would be the same across regimes), with the x-axis for the self-employed reflecting the taxable base after the 20% flat cost deduction. The tax wedge increases at very low earnings levels due to the minimum contribution base that is set at the minimum wage (e.g., for EsSalud contributions). The tax wedge is higher in the small business than in the general regime because a larger share of gross earnings is subject to social contributions (gratificaciones are smaller). Estimates for the micro-enterprise regime assume no pension payments but the micro-enterprise estimate includes the SIS payments for health. Self-employed workers are assumed to join SIS Independiente voluntarily (recorded as an employer contribution), with no pension contribution. Agriculture uses the reduced 6% health contribution rate applicable to smaller businesses. Non-tax compulsory payments (CTS) are excluded.
Source: OECD based on information submitted by the Ministry of Economy and Finance of Peru and OECD Taxing Wages models for Peru.
Note: Regimes refer to the REMYPE regimes administered by the Ministry of Labour. The mandatory profit sharing's contribution to labour cost assumes a 30% payroll-to-revenue ratio, an 8% profit margin and a business in which all workers earn the minimum wage. A profit-sharing rate of 8% is applied. SME and general regime estimates for a business with > 20 employees in Panel A and B, i.e. the profit-sharing obligation applies. Estimate for an employee with at least one dependent child. Green lines show the marginal impact on labour costs of increasing revenue by 1 UIT or hiring one additional worker at the minimum wage level. Based on the S/ 12 300 minimum wage that applied in 2023 to ensure comparability with tax wedge calculations.
Source: OECD based on information submitted by the Ministry of Economy and Finance of Peru.
References
[6] Kugler, A. (2005), “Wage-shifting effects of severance payments savings accounts in Colombia”, Journal of Public Economics, Vol. 89/2-3, pp. 487-500, https://doi.org/10.1016/j.jpubeco.2004.04.006.
[2] OECD (2026), Taxing Wages 2026 - Non-tax compulsory payments - Accompanying material for the Taxing Wages 2026 publication, https://www.oecd.org/content/dam/oecd/en/topics/policy-issues/tax-policy/non-tax-compulsory-payments.pdf.
[1] OECD (2026), Taxing Wages 2026: The Progressivity of Labour Taxation in OECD Countries, OECD Publishing, Paris, https://doi.org/10.1787/3a5169ef-en.
[4] OECD (2025), Expanding Social Protection and Addressing Informality in Latin America, OECD Publishing, Paris, https://doi.org/10.1787/86c1fd38-en.
[3] OECD (2025), OECD Reviews of Health Systems: Peru 2025, OECD Reviews of Health Systems, OECD Publishing, Paris, https://doi.org/10.1787/f3ddb6a4-en.
[7] OECD/IDB/CIAT (2016), Taxing Wages in Latin America and the Caribbean 2016, OECD Publishing, Paris, https://doi.org/10.1787/9789264262607-en.
[5] Tolentino, E. (2021), “An evaluation of a mandatory profit-sharing reform in Peru, using quasi-experimental methods”, Journal of Industrial and Business Economics, Vol. 49/2, pp. 313-334, https://doi.org/10.1007/s40812-021-00193-y.
← 1. The tax wedge increased by 0.7 pp. between 2013 and 2023, mainly due to the PIT. It now accounts for 0.8-0.9% of labour costs for the average-wage earner, whereas in 2013 no PIT was due at this income level (OECD/IDB/CIAT, 2016[7]). The basic allowance increased from S/ 25 900 to S/ 34 650 (+ 34%) over the period while the gross wage earnings of the average wage earner increased at a significantly higher rate from S/ 17 034 to S/ 38 452 (+126%).
← 2. Mandatory contributions to Peru’s private pension system (AFP) for those who opt out of the public system could be viewed as a more conventional NTCP. However, the contribution rate in similar to the 13% that apply in the public system so that the NTCP-inclusive tax wedge would be similar for workers affiliated to the private pension scheme.
← 3. In fact, they mechanically reduce the measured tax wedge because some of these payments, such as the two extra monthly salaries, increase the labour cost but are not subject to social security contributions. Non-tax compulsory payments (NTCPs) are defined as: “Requited and unrequited compulsory payments to privately managed funds, welfare agencies or social insurance schemes outside general governments and to public enterprises” (OECD, 2026[2]). Mandatory bonus payments from employers to employees would not fall under that definition.
← 4. A recent OECD report found that “[l]imited funding further constrains the system’s ability to improve coverage and benefits" (OECD, 2025[4]).
← 5. Customers withhold 8% of gross fees above a threshold as an advance payment for the PIT, which is then credited against the worker’s final tax liability determined through the tax return.
← 6. Although the 2024 pension reform (Law 32 123) provided for the gradual introduction of mandatory contributions at rates ranging from 2% to 5% of income, starting in June 2027, these measures have subsequently been repealed through Law 32 445.