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Featuring an interview with Esteban Chong, senior partner, PwC Peru, the tax chapter provides an overview of the Peruvian tax regime, highlighting recent changes in areas of interest to investors such as income taxes, stability agreements, tax treaties, tax exemptions and pension fund contributions, among others.

A series of reforms in late 2013 have effectively redesigned the health sector’s institutional framework and increased coverage and access to services. While state funding remains low, the sector has seen a significant rise in private sector participation, which is expected to continue following implementation of the reform package. With a number of larger companies investing heavily, smaller clinics now face difficulties staying competitive, which may lead to greater consolidation within the sector. Rapid economic growth is also enabling better access to education, accompanied by efforts to uphold educational standards. Total public expenditure has inched along in recent years but is still below the regional average. With government spending for education remaining relatively low, private participation has played a crucial role in the development of the sector, which continues to offer ample opportunities for private investment, especially in underserved areas.

Fuelled by private investment and broader economic growth, the telecoms market grew 13% in 2012 and is projected to expand by a further 11% in 2013. As the mobile market becomes more saturated with the entry of a fourth mobile operator in 2013, non-voice services are being rolled out to maximise customer revenues, such as mobile money and banking. The dominance of two operators in the mobile segment, stagnation in the fixed-line market, and the obstacles to the establishment and maintenance of telecoms infrastructure in rural areas continue to pose substantial challenges to the sector. Though the IT market grew 12% in 2012, growth is forecast to slow to 6% in 2013, with the hardware segment being the largest contributor to industry revenues, followed by IT services. Nonetheless, a more coherent national policy, coupled with a budding software market and a growing reputation as an outsourcing destination should ensure stable growth for the sector in the near future.

Despite a global economic recession, international tourist arrivals in Peru rose by 10% in 2012 to reach 2.85m and the industry forecasts these numbers will continue rising at a steady rate, exceeding 3m visitors by the end of 2013. Overall heightened economic activity and investments are building a large corporate segment that is pushing industry standards, particularly in the hospitality business. Revenues from foreign tourists amounted to $3.23bn in 2012, representing an 11% increase from the previous year, and official full-year figures for 2013 to surpass $3.5bn. The government hopes to boost annual tourist arrivals to 5.1m by 2021. Government support, most notably in efforts to simplify the process of obtaining construction permits for hotel development, as well as positive quantitative indicators demonstrate that tourism is becoming an area of growing importance for the country.

Increased domestic consumption, exports and investment have led to consistent sector growth since 2004, averaging 4.2% per year in GDP terms from 2003-12. In 2012 the agriculture and livestock sector grew 5.1%, with agricultural activity comprising 60% of the sector’s total growth, though its contribution to GDP declined to 7.2% as the pace of growth in other sectors rose. In the first half of 2013 agricultural production expanded by another 1.9% year-on-year. Most key agricultural exports experienced growth, except for coffee, which fell by 7.3% due to a combination of adverse climatic conditions and a drop in global prices. In the short term, growing domestic demand alongside expansion of the amount of irrigated land and improved production techniques should help support output growth. In addition, upward movement of prices for export produce, the commercialisation of which is facilitated by a rising number of FTAs, bodes well for revenues.

The second-largest contributor to GDP after construction, the retail sector reported 6.7% year-on-year growth in 2012, and continued to post 5% growth in the first half of 2013. The rapid development of the sector has meant a significant advantage for retailers that established a presence in the country in the early 2000s, and as a result a few conglomerates have dominant stakes across various retail segments. Land availability in Peru’s biggest cities remains a challenge, as does infrastructure, particularly in more remote regions. With the industry’s fundamentals set to continue to support growth in the coming years, retail should retain its high ranking in terms of both investment and contribution to national GDP, while the sophistication of consumer loans, which have grown six-fold over the past decade, is also expected to help spur development.