Peru’s government is lowering income tax rates as part of a broader initiative to reinvigorate its slowing economy.
Finance Minister Alonso Segura said that income tax payments for people in the fourth and fifth salary category will be reduced in 2015, allowing for an extra 1 billion soles ($340 million) in the economy for consumption, daily Gestion reported.
Income tax for companies is also to come down to 28% from 30% starting next year, and by 2019 it should reach 26%, Segura said.
“The change is to provide an incentive for investments,” Segura said. “So that companies have more earnings and better productivity.”
Erich Arispe, an economist covering Latin America for Fitch Ratings, said the measures will provide a boost of confidence to private investors and consumers in the short term.
“Adjusting the income tax downwards will facilitate that more capital is invested, and at the same time consumers will be more willing to spend,” he said in comments to Gestion.
Since his appointment as Finance minister earlier this year, Segura has been busy drawing up plans aimed at shoring up investments to support the sluggish economy, which has been hurt by a decline in prices for metals, an important export.
The government has already announced and approved several packages of reforms that aim to speed up investments by reducing delays to the approval of environmental permits.
The private sector has largely supported the measures, saying that they will help economic growth to recover next year from the expected growth of about 3% in 2014.
While many economists believe that Peru will post stronger growth next year, they also say it is unlikely to return to the 6% annual expansions that it has enjoyed over the past decade, particularly now that strong demand from China for raw materials has eased.