OECD Tells Peru to Limit Tax Exemptions as Revenue Fails to Take Off
PERU · ECONOMY
Key Facts
- —What happened: The OECD has proposed that Peru limit its tax exemptions and broaden the income-tax base.
- —Why now: Peru’s tax take has been stuck between 15 and 19 percent of gross domestic product since 1994.
- —The cost: Tax benefits already cost Peru 2.2 percent of gross domestic product in 2025, and new ones keep coming.
- —The catch: Congress approved 38 new tax breaks since 2021, seventeen of them by overriding the executive.
- —What would go: Reduced rates for big farms, hotels, restaurants and the Amazon region are on the list.
- —Who would pay more: A smaller basic deduction would pull average earners into income tax for the first time.
The Organisation for Economic Co-operation and Development has told Peru to rein in its tax exemptions and widen who pays income tax. The call lands as the country’s tax take sits near two-decade lows.
A tax take that never took off
The findings come from the organisation’s Tax Policy Review of Peru, reported by the Lima daily Gestión on 27 August. Its central number is stark: the tax take has barely moved in three decades.
Peru collects between 15 and 19 percent of gross domestic product in taxes, a band unchanged since 1994. The 2024 figure was 16.3 percent, close to the 2005 level and well below the Latin American average.
The review blames high informality and weak compliance, but also political choices. Each new round of tax exemptions narrows the base a little further.
Without sustained revenue growth, the report warns, Peru risks wider fiscal deficits and a rapid build-up of public debt. That would put medium-term fiscal sustainability in question.
How Congress built the exemption pile
Between the start of the 2021 legislative session and October 2025, Congress passed 38 laws creating tax benefits. The independent Fiscal Council estimates they could cost up to 1.8 percent of gross domestic product in lost revenue.
Seventeen of those laws were approved by insistence, the Peruvian mechanism that overrides an executive veto. The executive’s own number-crunchers were often sidelined.
The review says the process breaks the governance rules in Peru’s own Tax Code. Impact assessments required before a benefit is created are rarely done.
Existing tax exemptions already cost 2.2 percent of gross domestic product in 2025. The true figure is likely higher once the newest benefits are counted.
The tax exemptions the OECD wants eliminated
First on the list is the reduced 15 percent income-tax rate for large agricultural companies, extended until 2035. The review notes agro-exporters grew fast while contributing relatively little in tax.
Second is the pandemic-era reduced sales-tax rate for hotels and restaurants, extended to 2027. Its sales ceiling is so high that about 99.5 percent of tourism businesses qualify.
The review found no significant effect of that break on sales, jobs or consumer prices. It calls the incentive ineffective and a poor use of public money.
Third are reduced income-tax rates in the Amazon region, which have coexisted with decades of underdevelopment. Fuel exemptions there would stay, but under evaluation, and public transport investment is suggested instead.
The proposal that would touch ordinary workers
Peruvians pay no income tax on their first seven UIT, the tax-reference unit, worth 38,500 soles (US$11,490) in 2026. More than 70 percent of formal workers earned below that line in 2024 and paid nothing.
The review proposes cutting the deduction from seven UIT to five. That would pull workers earning above 27,500 soles (US$8,210) a year into the tax net.
The change would raise the tax wedge on an average-wage worker by about two points, from 18.1 percent to 20 percent. Minimum-wage earners would see no change at all.
The impact could be softened by an existing extra deduction of up to three UIT for certain expenses. Some newly taxed workers would use it to cancel the increase.
The mining puzzle at the heart of revenue
In the early 2010s, mining taxes equaled 22 to 23 percent of the value the sector generated. By 2023 and 2024 that share had fallen to around 10 percent, despite record copper prices.
The drop explains about one point of the fall in Peru’s tax take in 2023. Informal and illegal mining carries part of the blame.
The review flags a sharper anomaly inside the formal sector. Mineral traders raised sales by 127 percent between 2016 and 2022, but their sales-tax refund claims grew by 240 percent.
Because nearly all Peruvian mineral output is exported at a zero sales-tax rate, refunds can exceed what was collected along the chain. The report wants tighter control, scrutiny of profit-shifting abroad and a fight against gold smuggling.
Why this lands differently for Peru
Peru is a candidate for membership of the organisation, and reviews like this feed the accession process. Recommendations from a club Lima wants to join carry more weight than outside commentary.
For investors, the signal cuts two ways. Cleaner public finances help the country risk profile, while agro and tourism businesses face the loss of tax exemptions.
For foreign residents on Peruvian payrolls, the deduction proposal is the line to watch. A cut to five UIT would mean an income-tax bill where today there is none.
The Fujimori government is already weighing tax adjustments, according to Gestión’s reporting. Whether it picks up the review’s menu will show in the 2027 budget season now beginning.
Frequently Asked Questions
What is the OECD proposing for Peru’s tax system?
It wants Peru to limit new tax exemptions and scrap reduced rates for large farms, hotels, restaurants and the Amazon region. It also suggests cutting the income-tax deduction from seven to five UIT and changing the export drawback.
How much do Peru’s tax exemptions cost?
The OECD estimates 2.2 percent of gross domestic product in 2025, with further losses ahead. The Fiscal Council says 38 laws passed since 2021 could cost up to 1.8 percent of gross domestic product.
Would the OECD plan raise income tax for Peruvian workers?
Workers earning above 27,500 soles (US$8,210) a year would start paying income tax under the proposal. Those on the minimum wage would see no change.
Connected Coverage
We covered the growth side of the report cycle in OECD trims Peru growth to 2.9% despite a metals windfall and the revenue picture in Peru’s mining exports and tax revenue shrink the fiscal deficit.
Sources
OECD Tax Policy Review of Peru, as reported by Gestión on 27 August 2026.
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