The New Industries Law would seek to favor certain specific sectors to the detriment of the majority of the population

The draft New Industries Law proposes granting multiple tax incentives to specific industry sectors. This initiative includes, among its main measures, the deduction of Income Tax (IR) in eight sectors for companies that reinvest at least 20% of their net profits, the exemption of IR and VAT for capital goods, inputs and materials bonuses for companies located in high Andean and Amazonian areas that would be approved by regional authorities, the creation of an industrial development fund with credit guarantees and state subsidies, differentiated treatment between national and foreign producers, in addition to other benefits for companies related to electromobility , the digital industry and technological innovations.

Passing this law would be detrimental to the economy and industrial development in our country for five main reasons.

1. In the 1970s and 1980s, similar tax benefits favored the growth of inefficient industries, unable to compete abroad. Furthermore, a study carried out by Apoyo Consultoría reveals that similar laws in the past, such as benefits for the agricultural sector or the Amazon, have not had a clear positive impact on investment flows, productivity gains or improvements in the quality of life of the population in the sector or area.

2. The proposal lacks solid technical support for the selection of the benefited sectors. The decision of which activities to favor would fall to congressmen and regional authorities. In the past, projects like this created a favorable environment for arbitrariness and corruption by public officials, and incentivized businesspeople to spend much of their time obtaining tax benefits, instead of improving the competitiveness of their companies. According to the National Household Survey, half of the population considers that the country’s main problem is corruption. Furthermore, 79% of people do not trust their regional government.

3. Granting preferential treatment in public purchases to companies that use domestic raw materials or inputs could generate trade tensions and harm our exports. These measures go against free trade agreements and the Constitution, which establishes that national and foreign investment must be subject to the same conditions. Likewise, favoring the use of local inputs that may be more expensive or of lower quality would make the production process less efficient, increase the cost of production for society and could affect the quality of the final products for consumers.

4. Tax revenues in Peru are already low, compared to the region. Approving this rule would reduce the fiscal space to spend on urgent measures, such as closing infrastructure, education and health gaps, the fight against citizen insecurity, economic reactivation and attention to the climate emergency.

5. It puts fiscal sustainability at risk. The creation of a state fund that guarantees the credit of companies in certain sectors and provides subsidies is currently prohibited by the debt law. and could put the sovereign debt rating at risk and increase financing costs.

In contrast, in order to promote initiatives that transversally benefit the different economic sectors, it is essential:

First of all, simplify tax regimes by elimination of the Special Income Regime (RER) and the Mype Tax Regime (RMT). Instead, we propose a single Simplified General Regime for companies that invoice between S/ 96 thousand and S/ 1 million, a limit more aligned with special regimes in the region. This new regime would apply the fixed rate of the General Regime (29.5%) on the profit defined as income less cash expenses. A single, non-increasing rate in sections is recommended, such as the one applied in the IR to individuals, because in this way the disincentives to business growth are reduced and the accounting carried out by small businesses is simplified. Likewise, this new regime would allow simplified accounting, only of income and expenses, and depreciate 100% of capital expenditure, which reduces the tax burden during the first years of operation and encourages productive investment. This proposal is proposed to come into effect from 2025.

Second, promote a more flexible and predictable labor market through measures that reduce the costs of formal contracting.

to. Promote a constitutional reform that establishes that the compensation for a dismissal that does not meet the legal requirements is monetary compensation and not reinstatement. The reinstatement would apply only to cases of null dismissals (due to maternity, anti-union and discriminatory in general). This will encourage indefinite-term hiring, staff training and, therefore, greater productivity in general.

b. It must be established that every two years it is evaluated whether an adjustment is made to the RMV. In addition, criteria must be established that determine when the update should proceed. For example, the RMV should only be increased if the informality rate has not increased and only in those regions where the relationship between the minimum wage and the average wage is less than 50%. To define the magnitude of the increase, easy-to-measure indicators must be prioritized, such as average labor product and inflation, excluding volatile components such as food and energy.

Third, guarantee adequate public infrastructure for company operations:

to. Create a Special Public Investment Project (PEIP) to accelerate road paving. Between 2015 and 2022 the percentage of paved roads has only increased from 13% to 17%. We propose to establish a legal norm that allows those functions that the Regional Governments are incapable of executing efficiently to revert to the National Government. Under this rule, governments that do not meet the execution threshold would lose their ability to be executing units.

b. Create a framework to improve the hiring and development of engineering studies that allows auditing its production process. In the last five years, the National Government has executed only 68% of the budget allocated for investments and there are currently more than 1,800 works paralyzed. One of the causes of these delays is the poor quality of technical files for the projects. As a result, many connectivity works with private investment projects are delayed and limited. This legal framework would apply to all three levels of government, with incentives for regional and local governments to adhere.

Finally, empower police forces to confront growing citizen insecurity with resources to improve infrastructure, equipment and technology, establish specialized chambers in the Judiciary to combat “organized crime”, and improve border control, with the support of the Armed Forces.

The Government should focus its efforts on approving transversal measures that facilitate business growth and equalize the competitive environment. This will contribute to generating an environment conducive to industrial development and the attraction of private investment.