Tuesday, March 22, 2005

Tax Incidence in Peru (I)

I supposed that Peruvian politicians had been influenced for decades by wealthy groups to favor them in fiscal terms. For example, local industry would be in some way protected despite the international pressures to open borders. Some transactions would be undertaxed, as well as some kinds of personal or corporate revenue.

But I also suspected that governments would increase their tax revenue despite their allies when they run severe fiscal shocks , for example, the 1988 Peruvian economy collapsing at an annual average of -33%.

Before that, I need a national spectrum of the Peruvian tax state. Below you can find a map that I made using official data from the SUNAT (Peru's tax agency).

Source: Real Own Elaboration :-)

In clear terms, a citizen of Lima department paid 13.600 Nuevos Soles during 1997 in taxes. This citizen only paid 12.500 NS at the end of 2004. Meanwhile, a citizen in Arequipa, the second city of Peru, industrial, paid a 43% in taxes compared to a Limeño 1997, or just 32% in taxes in 2004.

The most striking point is that a 33% of those departments were taxing less than 10% per capita of the level taxed in Lima. The few coastal departments, where there exist some industry, better communications and the bourgeoisie lives, have a modest, but significant, level of tax incidence.

Surprisingly, economic growth and national macroeconomic development in the last years of 1990's and early 2000's didn't translate into a deeper presence of the tax state into the hinterland. Barely elsewhere tax incidence fell comparing to Lima's per capita tax revenues: tax incidence continued falling in 17 of 23 departments compared to Lima (1997-2005). In 2 departments it kept constant, and in 3 it grew.

There are many hypothetical reasons for these numbers, that I summarize here:

  • Changes in trade taxes could affect mainly to export-led regional economies, or those which import a lot from abroad.
  • Economic and demographic transitions (in eight years): rural to urban migration, economic and industrial transformation, arrival of foreign corporations -privatisation- to the capital.
  • Broadening of the tax base: from 1,6 milion of taxpayers in 1997 to barely 3 milions in 2005. These new pockets of taxpayers could enter regionally biased in the tax system.
  • Tax capacity out of Lima progressively damaged, or vice versa, Tax capacity in Lima improved.

In any case, Lima department concentrates 89% of total tax revenue in 2004. So, the question changes:

a) is Lima the real core of the Peruvian tax system because a 90% of the wealth is concentrated here, or...

b) is this in that way just because Peru doesn't have tax capacity for monitoring and taxing its citizens in far, less developed departments, or...

c) it doesn't have real political incentives for taxing indigenous' business and economic activities? (there is a long story of peasant revolts in those Andean provinces from XVIIth century to the last months).


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