The selective consumption tax (ISC) will increase: how does it impact us Peruvians?

The tax on sin or vices, as the ISC is also known, is usually very problematic for States when they decide to touch it, and especially when it comes to products as popular as beer. As a result of the increase in this tax announced by the Government of Dina Boluarte, and which will take effect starting in March, in this note we tell you what it consists of, why it is applied, what products are being considered and if it will affect your pocket.

What is the ISC and what is its importance?

The selective consumption tax (ISC) is applied to certain goods for two purposes, says Miguel Carrillo, tax lawyer. In the first case, it imposes a higher tax rate on expensive, ostentatious goods, such as gold and jewelry, since the State recognizes that those who acquire them have a greater purchasing power.

In the second case, it is applied to goods that can generate some type of negative externality in the population. “For example, to goods that can cause damage to health or the environment. The State taxes them at a higher rate to discourage consumption,” says Carrillo and adds that it also has a collection purpose.

What products does it apply to and since when?

In Peru, the ISC has been taxed on around twenty products such as fuel, mineral water, soft drinks, among others, since the late 90s, the expert tells La República.

The Government has explained that although it has the power to adjust this rate each year in relation to inflation and other factors, in the last two years it did not do so because the context was not favorable, but now is the time. According to ministerial resolution 030-2024-EF, the ISC will be raised on beer, cigarettes, reheated tobacco and alcoholic beverages such as pisco and wine as of March 1. The MEF will publish a schedule for its gradual application.

Will the price of all products increase?

“No. There would only be an increase in the announced products, but they will be moderate (see infographic). Carrillo maintains that families have no reason to worry because the basic basket is not affected. An increase in the ISC on fuel could have a greater impact, but this is not the case. “I believe that the State is taking advantage of this climatic situation (the heat wave) to raise the rate of certain goods that it knows will be consumed more despite the increase in the tax,” he commented. For his part, Minister Alex Contreras clarified that no product should increase in price now since the measure is not yet in force and that, if it were the case, it would be speculation.

How much will the selected products go up?

The ISC of beer (per liter) will go from S/2.31 to S/2.51; for cigarettes (per stick) it will go from S/0.36 to S/0.37; In the case of pisco (per liter) it will range from S/2.27 to S/2.48. For other drinks, the increase has also been applied depending on the degree of alcohol they have. It is worth pointing out that the 620 ml bottle – the most consumed in the country – will have an increase of less than S/0.20.

“It is important to note that it is the producer’s decision to transfer the ISC update to the consumer,” said the MEF. In this regard, the tax lawyer explains that in the case of beer the producer pays this tax, and if his profit is reduced, he raises his price to the retailer, who does the same. So the final consumer is affected.

What impact is expected with this measure?

The MEF has confirmed that it seeks to raise tax revenues, which in 2023 registered a 12% drop, although it specifies the global amount it hopes to achieve with this measure. For the lawyer, the ISC is being increased to amend what will not be collected due to the extension that was granted this year to mypes to file the income tax declaration.

While Phase Consultores points out that assuming that the consumption of beer – whose market is the largest among the selected goods – is maintained, the collection from this source would increase to around S/360 million (0.036 of GDP), “amount irrelevant” if you seek to improve tax revenues.