Peru proposes reforms to combat business informality by incentivizing growth
Peru is considering a legislative overhaul aimed at reducing business informality, which currently affects 86.8% of micro and small enterprises (MYPEs), according to the 2024 ENAHO survey. The proposed bill, which seeks to delegate legislative powers to the executive branch, correctly identifies that informality stems not from cultural choices or insufficient oversight, but from a rational response to a system that penalizes growth. The current legal framework creates abrupt increases in tax and labor burdens as businesses exceed certain thresholds, rather than allowing for gradual progression. This disincentivizes expansion, pushing companies to remain small to avoid significant financial repercussions.
The reform proposes replacing the fragmented system of tax regimes (RUS, RER, RMT, General Regime) and distinct labor regulations for different company sizes with two unified, progressive schemes. In taxation, a single regime with cumulative rates of 1%, 5%, 10%, 15%, 20%, and 30% on net income or profits, applied in tranches, would replace the current structure. Accounting requirements would also scale progressively with income or profits. Similarly, a single labor regime would ensure that contributions to health and pensions, severance pay, bonuses, and profit sharing increase gradually with salary levels, rather than abruptly based on annual revenue.
Beyond tax and labor incentives, the bill addresses structural barriers to entry and growth. It aims to reform the simplified closed stock corporation (SACS) regime, which has seen low adoption due to operational and banking issues. A credit guarantee mechanism will be introduced to mitigate lending risks for businesses, complementing financial institutions' assessments. Furthermore, a 'Licencia 0' digital platform will centralize permits and authorizations, streamlining the process of operating a business. The core concept across these measures is to shift the focus from sales volume to profit and salary income, and to remove obstacles related to business formation, financing, and operation. The success of these reforms hinges on their simultaneous approval, as addressing only one aspect would leave the incentive for informality intact.
The proposed Peruvian legislation addresses a critical systemic issue where the legal and fiscal architecture inadvertently incentivizes business informality. By creating sharp, non-linear increases in tax and labor costs at specific revenue thresholds, the existing framework discourages MYPEs from scaling operations, effectively creating a 'poverty trap' for businesses. The reform's strategy of implementing progressive, tranche-based tax rates and gradually increasing labor obligations, alongside simplifying business registration and financing mechanisms, represents a rational attempt to realign incentives. This approach acknowledges that economic actors respond predictably to their environment, and aims to create an environment where growth is rewarded rather than penalized. The success of such reforms often depends on careful implementation and ongoing evaluation to ensure that the intended progressive outcomes are achieved without introducing new, unforeseen distortions or compliance burdens. The legislative delegation sought by the executive branch suggests a recognition of the complexity and the need for a comprehensive, potentially long-term redesign of the business ecosystem.
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