In the Peruvian Congress, intense debate over the reduction of Income Tax

In the Peruvian Congress, a bill is advancing that could provide tax relief for formal workers by proposing a reduction in Income Tax (IR), specifically for fourth and fifth category incomes. This proposal includes expanding the list of expenses that could be deductible for IR calculation, potentially leading to significant savings for taxpayers. Currently, workers can deduct up to 3 UIT (S/ 15,450) in categories such as dining out, formal housing rent, payment of professional fees, among others. However, Congresswoman Rosangella Barbarán introduced a bill aiming to extend this list of deductible expenses, with the intention of offsetting the various expenses that workers incur throughout the year. The bill approved by the Congress Economic Commission includes seven new expenses that could be deductible in the IR calculation, such as education, health, mortgage interest for home purchase, food, child support, domestic flights, and veterinary services. These changes aim to provide greater benefits to taxpayers and improve their financial situation. During the debate in the Economic Commission, Congresswoman Isabel Cortez requested the opinion of the Ministry of Economy and Finance (MEF) on the impact of the measure, but her request was rejected. This sparked some controversy, as it was considered important to know the MEF's position before making such a significant decision on fiscal matters. According to a report from the MEF accessed by former Minister of Economy and Finance, Luis Miguel Castilla, the proposed tax reduction would have an annual fiscal cost of approximately S/ 1,470 million. This significant economic impact has raised criticisms and concerns about the sustainability of the measure, especially considering that currently 80% of workers do not pay Income Tax. Experts like Luis Arias Minaya and Diego Macera have expressed concerns regarding the viability and fairness of the proposal. It has been pointed out that the expansion of tax benefits could primarily benefit higher-income workers, as they are the ones who incur expenses in categories like airfare, veterinary services, among others, included in the bill. Despite the criticisms, Congresswoman Rosangella Barbarán defended the measure arguing that it aims to benefit the middle class and offset the additional expenses that many workers face throughout the year. However, experts like Luis Miguel Castilla have questioned the effectiveness of this tax reduction in terms of formalization and fairness, suggesting that there might be political motivations behind its approval. In this context, the proposal to reduce taxes for workers in the Peruvian Congress has sparked intense debate regarding its fiscal impact, fairness, and effectiveness in promoting formalization. With divided opinions and concerns about the sustainability of the measure, it is up to the legislators to decide whether this tax reduction, which could entail a significant change in the tax burden for formal workers in the country, will ultimately be approved.