TAXATION AND DEVELOPMENT IN PERU: CHALLENGES IN THE FACE OF INFORMALITY AND CORRUPTION.

Introduction.

History has recorded the many ways in which people, since they began to organize themselves into larger social groups, saw the need for a form of contribution of goods or resources from everyone, to be allocated to the means or mechanisms that would contribute to the better management of the group; even determining in this way, the subsequent development of human societies. There are records of this from ancient Egypt to the Mayans, Aztecs or Incas, passing through Greece or Rome; and of course from many other peoples, some somewhat older than those mentioned.

Many centuries or millennia later, this primitive form of economic and political organization of societies in formation, not only remains in force but is even more rooted, because it is a general truth that said act known today as Taxing, will be better or more optimal for nations or countries as long as it includes or encompasses more activities, people, companies and other organizations or entities; because, in this way, the State will have more resources to allocate to education, health, defense and in general to the provision of infrastructure that promotes growth and development; and, if the collection of taxes is also sustained and sustainable, that is, it grows annually with respect to the Gross Domestic Product (GDP), it will be possible to avoid or reduce national or international debt, it will be possible to positively influence the fiscal deficit and, in this way, make public and private credit or financing cheaper, the increase in the cost of which slows down economic growth and the consequent development of nations.

Aware of this, Jesus Christ, when responding to a Pharisee with the famous phrase "to Caesar what is Caesar's and to God what is God's," according to the Gospel of Matthew 22, 21, perhaps also wanted to subtly recognize the importance of the act of paying taxes by mentioning what partly explains the existence of social groups from their appearance to the present day; Specifically referring to a duty to the Roman Empire that implies an essential responsibility to organized social groups or States, through the generally monetary contribution of individuals or companies after obtaining economic benefits, through the free and voluntary exercise of some type of business.

For this reason, it is important to analyze and highlight the aspects that positively influence Peru's tax collection capacity, identifying and resolving the negative factors that negatively influence it. A country that, although it has grown steadily in recent decades, as well as its tax collection, still has important limitations that need to be analyzed, many of them determined by government inefficiency, informality or corruption.

Economic growth and Peruvian tax pressure.

Peru grew in the last 20 years to become a high-middle-income economy given its macroeconomic stability, its commercial openness and a favorable international environment. In fact, its Gross Domestic Product (GDP) grew more than fourfold, as did per capita income: from USD 2,040 in 2002 and USD 2,126 in 2003, to USD 7,126 in 2022 and USD 7,790 in 2023 (World Bank, 2024); while the ratio of tax revenues to GDP, known as tax pressure, also grew during the same period, even in the pandemic years: in 2019 it was 14.4%, in 2020 it was 13% and in 2021 it was 16.10% (Swissinfo.ch, 2022).

In 2023, there was a 0.6% contraction of GDP, which meant a reduction in tax collection, due to a deterioration in macroeconomic variables, lower international prices, internal social conflicts and adverse weather conditions (SUNAT, 2024). But in 2024, tax collection recovered again, reaching S/. 155,756 million, 3.3% more than the previous year (S/. 8,510 million more), and exceeding what was forecast in the Multiannual Macroeconomic Framework 2025-2028 of the Ministry of Economy and Finance (MEF).

Although these figures are encouraging, the country is still far from the tax pressure percentages of first world nations, those that are part of the Organization for Economic Cooperation and Development (OECD), for example, whose members usually record collection levels around 30% of their GDP. Peru must therefore close the gap so that its inclusion - currently in process - in this organization not only occurs, but also to increasingly have an optimal level of resources that allow a minimally efficient performance of the State at all levels; despite the shaky national political, economic and social situation determined by the effects of the inefficient government of Pedro Castillo and his successor, and the apparent inability of the opposition and the Peruvian Congress to be a viable and reliable alternative.

Investment and tax reform.

Consequently, although the tax administration and collection agencies (mainly SUNAT and municipalities) can allocate a larger budget to increasing and training personnel, or to the acquisition of materials and equipment, a true and complete review and reform of the Peruvian tax system would also be opportune in order to make the management, inspection and collection of all taxes more efficient, economical and effective.

In this sense, it would not be a bad idea to review the exemptions and non-taxes regarding some taxes and sectors to verify their technical and legal basis and, essentially, whether they have fulfilled their purposes. Only in the private education sector is it appropriate to ask how much money SUNAT and municipalities failed to receive due to the validity of exemptions or non-taxation of income tax, sales tax, vehicle tax or property tax, due to the laudable but in many cases unfulfilled objective of reinvesting the income obtained in infrastructure, training or research and development, for the sake of the advancement of science and the progress of Peru.1

Greater control of evasion and avoidance through tax audits.

At the same time, the work of tax inspection, supervision or auditing can be made more intensive and efficient, to verify whether what is declared and paid by formal taxpayers is correct and/or to sanction, when appropriate, the tax fraudsters detected.

The majority of the million-dollar payments made by various mining companies to SUNAT in 2021 were the result of tax audits (Antamina, 800 million; Cerro Verde, 1,476 million; Buenaventura, 2,134 million; MMG Las Bambas, 690 million). At the municipal level, there are also tax audit processes that ended with the collection of significant amounts of Property Tax and Tax Fines, some of which I was in charge of directing in the jungle department of Loreto; such as the one that ended with the payment of S/. 1,124,179.40 by Petróleos del Perú S.A. to the District Municipality of Urarinas, the S/. 603,001.94 transferred in April 2021 by Pluspetrol Norte S.A. to the District Municipality of El Tigre, or the more than S/. 300,000.00 collected from Petroperú S.A. for the District Municipality of Morona.

And in 2023, despite not having been a good year - as detailed in previous paragraphs - SUNAT's tax collection resulting solely from administrative and criminal litigation proceedings, initiated against natural persons and companies, normally with a tax audit or inspection process, amounted to S/. 8,946.80 (SUNAT, 2024).

Taxation and the problem of informality.

Such tax audit actions can be carried out with the Ministries of Production and/or Labor, or with entities such as the National Superintendence of Labor Inspection (SUNAFIL), so that the results are more effective, transcend the tax scope of SUNAT or the municipalities, and reduce the significant percentage of the informal economy that corrodes Peru. In this way, it will be possible to avoid further tax fraud against the Peruvian State and that workers have adequate working conditions with better and fair salaries considering some type of insurance, Compensation for Length of Service (CTS), or contributions to the private or state system for future pensions.

Such joint and coordinated inspections, however, must be carried out in the context of a reform that seeks to reduce informality in a sustainable manner, without reducing the capacity to grow and be efficient of the inspected company or business, nor its capacity to innovate. In short, finding a balance between the application of the law and the creation of an environment in which compliance is feasible; since reforms that combine inspections with policies favorable to companies may represent a possible way forward, among other things by reducing the costs of hiring formal workers (Santos, 2025).2

More businesses and companies to pay taxes for development. 

The existence of more formal businesses or companies that pay taxes to the State will germinate a virtuous circle that will benefit both people, as well as localities and Peru in general; and, precisely for this reason, any measure that contradicts or prevents that, goes against any action tending towards development since the times when societies began to organize themselves. In this way, SUNAT and all municipalities will be increasing collectors or collectors, among other taxes, of the income tax or the general sales tax (IGV), the alcabala tax, the vehicle property tax cular or property tax, respectively, to companies or businesses that are encouraged, generated or formalized; while some regions or departments, and various institutions may in turn benefit from resources from the canon (mining, oil,...).

For the efficient and controlled use of tax revenues.

However, all the above arguments will be of no use if the resources available in general and the tax revenues obtained by SUNAT or the municipalities in particular, are not allocated to the efficient management of the State at all levels and areas; in fact, that is the only way for the population in general to benefit from its collection. 

It is therefore pertinent that the Judiciary, the Attorney General's Office or the Comptroller General of the Republic continue to optimize their processes, equipment and personnel so that these resources do not end up benefiting mostly inept and corrupt bureaucrats, some of whom later apply to be authorities, presumably thanks in part to the money illegally stolen when they worked as state workers or officials; while many others boast homes, cars and other assets with the money that should have benefited the poorest but which perpetuates, on the contrary, the vicious circle of corruption that has corroded Peru since its Independence in 1821.

In this regard, Paolo Mauro, deputy director of the Fiscal Affairs Department of the International Monetary Fund (IMF), stated: "If you compare the countries that are perceived as less corrupt with those that are perceived as more corrupt, the differences in the proportion of income as part of the Gross Domestic Product (GDP) is 4 percentage points." And if we consider that the “average tax revenue for Latin America is 26.5% of GDP, an increase of 4 percentage points is a very large amount.” If all countries substantially improved their control of corruption, it would mean going from 26% to 30% and there would therefore be many more resources for productive expenditure (BBC, 2019).

Accountability and other mechanisms for controlling public spending.

For all these reasons, it is necessary to revitalize citizen control mechanisms such as the currently almost extinct public accountability process, or to promote training programs so that any citizen (congressman, councilor, councilor or any minimally interested person) understands and handles the income and expenditure information that, for example, is provided by the Economic Transparency Portal of the Ministry of Economy and Finance (MEF), in order to clearly know the amount and how all the income or funds available in any public entity were obtained and, above all, how and on what they are being spent or executed.

Furthermore, municipal councillors, regional councillors or any worker in addition to the control offices that depend on the Comptroller's Office, should have real facilities and the competence to effectively and opportunely control the expenditure in their institutions, almost in the same way that a warehouse is controlled by means of a card; in this case verifying the generation, registration and custody of the documentation or support of all expenditure of funds or expenses, and controlling the registration and real existence or entry into the institution of the contracted service or good (study, work, or acquisition of goods and other services).

And it would also be important to better disseminate the effects of corruption on the economy and society in general, so that every citizen or worker is willing to report the cases that they know of or discover. In this sense, it is necessary to know, for example, the process for contracting public works, where the economic impact of corruption seems to be more noticeable; because, although a work is usually awarded to the lowest bidder, later said contract becomes the most expensive or onerous due to the innumerable extensions of work that no one seems to control. In this regard, the Professional Colleges of Engineers - chapters of Sanitary Engineers or Civil Engineers - and of Architects, could contribute sufficiently; not one or another non-governmental institution that arises as an independent supervisor, perhaps financed by some contractor or supervisor of the work in question.

Only in this way can there be a growing certainty that the money of all will not benefit a few and will tend to the common good; which has been and should continue to be the objective of all policy in the interest of a developing society with justice, freedom and solidarity. And even more so if there are still evident limitations in Peru in health, education or infrastructure in general, due to the poor management of many authorities who nevertheless skillfully handle the "art" of illegally extracting public funds.

Corruption corrodes development.

Indeed, despite the advantageous Peruvian economic situation of the last decades already described, many public authorities did not begin the construction of useful or necessary public infrastructures, but rather many unviable or poorly executed works that resulted in waste due to sheer stupidity, but with a skillful management of the corruption that accompanies them.

Examples of this exist from Moquegua to Piura, passing through Cuzco, Lima or Loreto; in the latter there is the sadly famous sewerage project stubbornly undertaken by a former governor and former mayor, whose final investment of almost a billion soles (between studies, labor, pipelines and others) is buried in the bowels of Iquitos, the largest city in the Peruvian jungle, as an example of the ineptitude, corruption and even impunity in Peruvian public management before society in general and the Comptroller's Office and the fiscal and judicial entities in particular.

The figures of corruption in Peru. 

According to the Comptroller General, in 2022 corruption in Peru amounted to S/. 24,419.00 million; a significant part of the Republic's budget diverted to the pockets of unscrupulous businessmen, authorities, officials and state workers who, in this way, generally finance houses, cars, trips, alcohol, multiple partners, among other vices that they cannot pay with a normal or legal salary. Thus, the majority is harmed by poorly or never-finished schools, paralyzed hospitals, lack of rural roads and other infrastructure that would promote business and trade in products and services and, with it, the general well-being and development of Peru.

Paralyzed public works and corruption.

The awarding of works and other contracts that result in disputes between government entities and contractor companies or individuals, many of which last for several years despite having had significant expenditures or disbursements of state funds, also explains how and where a large part of the public budget corroded by corruption ends up.To date, there is a total of 1,403 paralyzed public works, involving 492 entities for an amount of S/. 10,839,598,792.3 

A figure somewhat lower than that which was being handled by official sources until December 2023, amounting to more than S/. 26,000 million, comprising 2,300 paralyzed public works projects throughout Peru.

With corruption, poverty will continue to prevail.

If everything continues as it is, that is, if Peru continues to grow as it has done in the last two decades amidst international ups and downs and without facing up to solving or diminishing the national political and social problems, the economic stability it boasts and the consequent growth will be of little or no use. In this way, the poverty manifested in the latent lack of basic infrastructure in health, education or transportation will continue to be evident, as will the ostentation generally proclaimed by corrupt politicians and/or public managers.

Therefore, it is necessary to know how to choose political authorities from among candidates with proven moral solvency and professional success; not stubbornly choosing candidates who are perhaps mafia-like because they cannot sufficiently demonstrate the origin of their resources or former authorities who have already shown how inefficient, unscrupulous and corrupt they are. Only in this way will Peruvian society be sure that all its citizens will participate in or benefit, sooner rather than later - or never - from the product of efficient and transparent management of the State.

Bibliography.

1. World Bank. (2024, October 21). Peru Overview. Retrieved January 31, 2025, from https://www.bancomundial.org/es/country/peru/overview#:~:text=La%20estabilidad%20macroecon%C3%B3mica%2C%20la%20apertura,a%20US%24%207126%20en%202022 https://www.bancomundial.org/es/country/peru/overview

2. BBC News Mundo. (2019, April 5). The millionaire income that governments lose due to corruption (and how much this problem affects Latin America). https://www.bbc.com/mundo/noticias-47823036

3. Comptroller General of the Republic. (n.d.). Paralyzed Works. Public Works Information System. Retrieved January 30, 2025, from https://infobras.contraloria.gob.pe/InfobrasWeb/Infografias/Paralizadas

4. El Comercio. (2023, May 18). The cost of corruption. https://elcomercio.pe/opinion/editorial/editorial-el-costo-de-la-corrupcion-editorial-nelson-shack-corrupcion-pedro-castillo-noticia/?ref=ecr

5. Government of Peru. (2024, January 6). Tax collection for the year 2023 amounted to S/ 147,246 million. https://www.gob.pe/institucion/sunat/noticias/895978-recaudacion-tributaria-del-ano-2023-ascendio-a-s-147-246-millones

6. Government of Peru. (2025, January 7). SUNAT recorded tax revenues of S/. 155,756 million in 2024. https://www.gob.pe/institucion/sunat/noticias/1087301-sunat-registro-ingresos-tributarios-por-s-155-756-millones-en-2024

7. Ministry of Finance. (2025, January 7). of Economy and Finance (MEF), Multiannual Macroeconomic Framework 2025-2028, Lima, 2024.

8. Santos, Cesar. (2025, January 23). Combating informality in Brazil: The hidden costs of labor inspections. Inter-American Development Bank ("IDB"). https://blogs.iadb.org/ideas-que-cuentan/es/combatiendo-la-informalidad-en-brasil-los-costos-ocultos-de-las-inspecciones-laborales/?j=1137119&sfmc_sub=276751100&l=295_HTML&u=20454591&mid=100028582&jb=2030

9. SUNAT, Results-Based Management Report - Year 2023, Lima, 2024.

10. Swissinfo.ch. (2022, January 6). Peru had the highest tax collection in 2021 in the last seven years. https://www.swissinfo.ch/spa/per%c3%ba-tuvo-en-2021-la-mayor-recaudac3%c3%b3n-tributaria-de-los-%c3%baltimos-siete-a%c3%b1os/47243764#:~:text=Respecto%20a%20la%20presi%C3%B3n%20tributaria,2019%20(14%2C4%20%25).

11. Torres, Hernán. (2022, January 1). In 2021, Antamina and 3 mines paid tax debts. La República. https://larepublica.pe/economia/2022/01/01/mineria-en-2021-antamina-y-3-minas-pagaron-deudas-tributarias-sunat

12. Vega Murrieta, Neil (2018, August 31). The oil production that Loreto and Peru need. Worldly Musings. https://caviles-mundanos.blogspot.com/2018/08/el-necesario-petroleo-que-parece.html

13. Vega Murrieta, Neil (2019, April 3). Informality remains a problem in Peru. Worldly Musings. https://caviles-mundanos.blogspot.com/2019/04/el-latente-problema-de-la-informalidad.html

14. Vega Murrieta, Neil (2022, July 21). Taxation and development in Peru. Worldly Musings. https://caviles-mundanos.blogspot.com/2022/07/tributacion-y-desarrollo.html

15. Vega Murrieta, Neil (2024, May 11). Notes on economics, politics and the corruption that corrodes Peru. Worldly Musings. https://caviles-mundanos.blogspot.com/2024/05/apuntes-de-economia-politica-y-de-la.html

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1. So far, it is mostly evident that some universities have been created without adequate infrastructure or qualified personnel, and that some millionaires have emerged thanks - in part - to the money that was not taxed.

2. There is an excellent article on this topic focusing on Brazil, published on the Inter-American Development Bank (IDB) blog. See details in the Bibliography.

3. According to the website of the Comptroller's Office's Public Works Information System.