Global Daily Tax News, Peru Urged To Undertake Ambitious Tax Reforms, (Oct 3, 2025)

The OECD has released a slew of recommendations for Peru on boosting the nation's low tax-to-GDP ratio, which is just half the OECD's at 17 percent.

The OECD's new Economic Survey for Peru says Peru's tax system needs "deep reform" to raise more revenues to finance social, infrastructure and adaptation and mitigation spending needs, while securing fiscal sustainability. It said Peru's low tax-to-GDP ratio is well below regional and OECD averages, due to high evasion, informality, overreliance on indirect taxes, and a narrow base.

The report recommends, in the short term, efforts should focus on strengthening the tax administration and reducing inefficient tax expenditures. The report also highlights the need to undertake comprehensive reform of the corporate income tax regime, in particular by overhauling the tax concessionary regimes for SMEs.

The OECD recommended, in the medium term, Peru should broaden the personal income tax base while reducing social security contributions for low-income workers. It added that improving revenue collection from property, excise, and environmental taxes would diversify revenues and make the system more efficient and equitable.

In response to revenue shortfalls, Peru's Government implemented various fiscal policy adjustments throughout 2024, the report notes, including introducing new taxes on online gaming and digital services, but these were partially offset by tax expenditures, including the extension of VAT reductions for restaurants and hotels.

The OECD noted that other legislative initiatives such as the creation of tax exemptions for Private Special Economic Zones (ZEEP), the reduced CIT rate for agroexporting businesses, and waiving tax penalties and interests for tax-amnesty participants will reduce revenues.

On tax reform, the report states: "A stronger tax system is essential to increase revenues, promote formalization and ensure a fairer distribution of the tax burden. While statutory tax rates are moderate, revenue collection remains low, [at] only 17 percent of GDP in 2024, well below Latin American averages (24 percent of GDP) and far from the OECD average of 34 percent of GDP. This gap reflects widespread tax evasion, high informality, and inefficient tax administration. Peru's tax mix is heavily reliant on indirect taxes (primarily VAT), while personal income taxes deliver a relatively lower share of revenues, suggesting room to shift toward a more balanced and progressive system to enhance equity. Corporate income tax revenues are also relatively high compared to other Latin American countries, contributing to a significant share of total tax revenues, despite a large share of businesses operating informally, while others use tax incentives and deductions that lower the effective tax burden."

Specifically, the OECD recommended: "Expanding the personal income tax base – by gradually lowering the exemption threshold – could increase revenues while progressive social security contributions based on labour income would improve formalization incentives and progressivity. Progressivity can also increase by reforming the taxation of capital income. These reforms to the personal and corporate tax systems are mutually reinforcing and can jointly reduce informality, strengthen compliance, and improve both equity and revenue mobilization. Improving revenue collection from property, excise, and environmental taxes would diversify sources and make the system more efficient and equitable."

The report highlights that tax evasion remains high, accounting for an estimated 10 percent of GDP in 2023, and is compounded by Peru's large informal sector (at above 70 percent of employment). The OECD said: "Strengthening tax administration and collection efforts is crucial to reducing evasion and increasing revenues. Ongoing reforms, such as enhancing cross-border tax cooperation, improving risk-based auditing strategies, and expanding the use of digital tools, such as electronic invoicing, digital submission of tax returns and payments, the use of big data analytics and artificial intelligence to better detect risks, and risk-based profiling of taxpayers to guide audits and control measures, must continue. The adoption of electronic invoicing and real-time reporting has helped reduce underreporting and fraud but more efforts are needed."

It added: "Tax compliance remains burdensome: businesses in Peru spend 480 hours per year on tax procedures, well above the Latin American average of 317 hours, according to the World Bank's Business Ready platform. This significant gap highlights the need for simplified tax laws and regulations, enhanced user-friendly online platforms for tax filing and payments, and progress on electronic invoicing and taxpayer support services."

The report also discusses risks to Peru resulting from the ongoing international work on BEPS, stating: "The global minimum tax will limit the benefits of certain tax incentives, particularly income-based incentives like the full or partial corporate tax exemptions offered in Peru's Special Economic Zones. Corporate tax exemptions in Special Economic Zones that result in an effective tax rate below 15 percent could allow other jurisdictions to claim the difference, leading to a loss of revenue for Peru. To align Peru's Special Economic Zones (SEZs) with international standards, the legal framework should incorporate the substance and transparency requirements established under Action 5 of the OECD/G20 BEPS Project, ensuring that tax benefits are granted only where substantial economic activity is conducted and appropriate information is disclosed to tax authorities. Peru has committed to implementing this minimum standard. If the OECD/G20 Forum on Harmful Tax Practices finds that Peru's SEZ regime does not meet these standards, it could result in the SEZ regime being classified as harmful or Peru being listed as a non-cooperative jurisdiction, with reputational and economic consequences."