November 13, 2003

Peru Drops 19% Value-Added Tax On Corn

On Nov. 7, Peru dropped the 19% value- added tax for both imported and locally produced corn, according to a U.S. Department of Agriculture attache report posted Wednesday on the Foreign Agricultural Service Web site.

This measure will cost the government around $22 million in annual tariff revenues. It is aimed at reducing informal corn production and encouraging livestock producers, especially poultry, to purchase local corn, the attache said.

Though this tax reduction seems to benefit corn imports, in reality it is discouraging it. Most domestic corn producers in Peru operate in the informal economy. That is, do not pay taxes, including the VAT, and they do not issue receipts to purchasers. On the other hand, companies that import corn, mainly poultry producers, operate in the formal economy and do pay taxes, including VAT.

While the domestic corn producers were not paying VAT, they were still selling their corn at the same price as imported corn. Since payments of VAT is tax deductible imported corn was more appealing, companies paying the same price as domestic corn could deduct the VAT from their taxes. By eliminating the VAT, the government is eliminating an advantage imported corn had, the

report noted.

Peru produces has around 291,000 hectares of corn with a production of about 900,000 metric tons. Corn imports in 2002 were 820,000 tons, mainly from Argentina.

Peruvian producers are requesting that the government raise import tariffs for imported corn. In a recent meeting with a senior advisor to the president, Post learned that the government will not raise or lower import duties for corn. This measure was a "creative" alternative to satisfy producers.

Source: USDA