From this Sunday, May 1 until July 31 of this year, the exemption from the General Sales Tax (IGV) will be in force for five products from the basic food basket: fresh, refrigerated or frozen chicken; fresh chicken eggs; sugar; uncooked, unstuffed or otherwise prepared pasta; and the bread.
It is worth noting that this measure was promoted by the Executive power as a result of the increase in prices exacerbated by the geopolitical conflict between Russia and Ukraine and its impact on the supply and logistics chains, in a context where the pandemic already kept the cost of fuel skyrocketing.
In this regard, the head of the Ministry of Economy and Finance (FEM), Óscar Graham explained that the aim is to serve lower-income people, who are the most affected; apart from that the IGV of the main inputs may be used as a tax credit.
“What has to be done in these circumstances is to focus the Government’s measures using resources with exceptional measures. That is why gradualness is so important, the temporality of precisely how to use these measures so that it reaches those who need it most and that’s it. The Government has been taking some additional measures such as the ISC on fuels, and others are being prepared, such as the increase in bonuses for social programs,” said Graham a few weeks ago.
does not guarantee anything
Paradoxically, despite the fact that Graham alleged “targeting”, the Government’s decision does not go that route and will not alleviate the blows of inflation in households that really need help “because prices will not be able to move from the range in which they are currently”, according to the president of the Consumer Protection Association Elect Peru, Carlos Zúñiga.
The specialist points out that “it is very likely” that the VAT reduction will be lost in the marketing chain, and by not contemplating the return of all the VAT paid on inputs, raw materials, intermediate goods and services used in its production, the desired effect will not be generated, and on the contrary, said amount will become a cost and will further damage the final sale value.
“You are playing with the hope of people who need more purchasing power. This design is not efficient because the population that needs the support had to be identified. We are killing a fly with a bazooka, injuring the treasury and impacting the money that the State has for social projects”, she added.
Zúñiga considers that the exoneration of the VAT of the food included in the project would be equivalent to a monthly subsidy of S/ 30 for households of high socioeconomic levels, while for those of low strata, this would be barely S/ 5 because the consumption of the exempted products is lower since the product marketing chain is informal.
For his part, the dean of the UP Faculty of Economics, Carlos Casas, emphasizes that the IGV exemption will benefit the owners of the companies “who are not necessarily poor people.”
In his opinion, support through cash transfers should be focused on the most vulnerable groups, because there is no equity criterion to mitigate the effects of the inflation in the homes.
Indecopi informed that it will be in charge of monitoring the sale prices of the products exempted from the VAT at the national level, and for this they began a pilot plan in 86 food markets, 30 supermarkets and 81 bread sales points. After the test, they managed to collect that the average price of sugar reached S/ 5.03 per kilo, while the bulk egg, at S/ 7.81. Likewise, chicken reached S/ 9.25 per kilogram and noodle noodles were located at S/ 3.57 in markets and S/ 2.42 in supermarkets, respectively.
Direct bonds, that’s the route
By: Germán Alarco, professor at the Universidad del Pacífico
It is unlikely that the IGV exemption will be very effective in curbing the price increase of the basic food basket. I agree with what former minister Pedro Francke stated: the best route is direct bonds to the population. This is what the southern neighbor has been doing with the Chile Support program, which, among other measures, includes bonuses (emergency family income until September, the progressive increase in the minimum wage to around US$500 per month and the freezing of transport urban until the end of the year).
Indirect subsidies such as VAT reduction can be regressive, since they benefit more those who consume and earn more; for that reason they can be more expensive and less efficient. Let’s also not forget the oligopolistic market structure of the poultry industry, flour and noodles, and sugar. I prefer the direct bonds, where you already have more experience; more Bono Gas, study the urban transport that is done in Chile and review the formulas for readjustment of domestic electricity rates, fuels and tolls through Osinergmin and Ositran.
Ad. The Alicorp company ratified, through a statement, that they will take advantage of the measure and from today they will withdraw the VAT from their pasta brands in all their presentations, as well as for pre-baked bread.