This report was published on 25 August 2026 by the OECD
This report examines the key challenges facing Peru’s tax system and presents options for reform. It highlights the need to gradually raise Peru’s low tax-to-GDP ratio, which has not increased sustainably despite years of economic growth even as expenditure requirements and fiscal pressures continue to grow. The report outlines how to strengthen public revenues by addressing persistently high levels of informality and non-compliance, while broadening the tax base, including through the rationalisation of tax expenditures. It also identifies opportunities to improve tax design and proposes targeted increases in selected taxes.
Introduction
At 16.3% of GDP in 2024, Peru’s tax-to-GDP ratio remains low compared to other countries in Latin America and the Caribbean (LAC). This persistently modest revenue performance is due to various tax-related factors, including high levels of labour and firm informality, weaknesses in tax compliance and enforcement and the increased use of tax expenditures (TEs) to achieve policy objectives that may be better realised through spending. In addition, certain tax design features contribute to this outcome, such as the highly schedular structure of the personal income tax (PIT), and specific provisions in simplified regimes that hinder formal business growth. Improving the design of Peru’s tax system is essential not only for increasing revenue and ensuring fiscal sustainability in the medium term, but also for supporting greater public investment and social spending.
Despite three decades of robust economic growth, Peru has not been able to generate a sustained increase in its tax-to-GDP ratio, which has fluctuated between 15 and 19%. Peru’s tax revenues remain highly volatile, mostly reflecting fluctuations in mineral prices. Mining-related tax revenues have not contributed to a persistently higher tax-to-GDP ratio over the medium term. Trends observed in 2023 and 2024 may suggest that revenues from the mineral sector can no longer be expected to rise, even in a period of high prices, which may highlight underlying vulnerabilities linked to non-compliance, tax avoidance and informal and illegal mining. Making sure other growth sectors besides mining, such as agro-exports and tourism, contribute adequately to increasing the tax-to-GDP ratio is key to improving long-term tax buoyancy.
There is scope for Peru to strengthen its tax system to better support growth, equity, and revenue mobilisation. Reforms should focus on restoring the link between economic growth and tax revenues by broadening the tax base and increasing the number of businesses and workers within the reach of the tax system, but also on improvements to tax design. Key priorities include rationalising widespread TEs such as the reduced corporate income tax (CIT) rate for the agriculture sector and the VAT reduced rate for hotels and restaurants, taxing capital income at slightly higher rates and reducing the high basic tax allowance that applies to labour income …
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