Alfredo Thorne, Minister of Economy and Finance: Viewpoint

Viewpoint: Alfredo Thorne

In light of the devastating effects of floods caused by the El Niño phenomenon during the first trimester of 2017, the government has worked on a plan for the country’s reconstruction and rehabilitation. Thus, a bill was proposed to Congress that improves the Obras por Impuestos (Works for Taxes) scheme. On April 25, 2017 the bill passed as the Law for Reconstruction. There are three aspects that need close consideration when analysing the laws behind the Works for Taxes programme: its advantages, what the government has achieved under this scheme and how it will be made effective going forward.

Through the newly implemented legal frameworks for the website Invierte.pe, public-private partnerships and Works for Taxes, the state seeks to enhance investments to bridge the country’s infrastructure gap, which has widened as a result of the effects of El Niño. In the case of Works for Taxes, the programme facilitates the execution of public investment projects by maintaining or increasing the briskness of investments, in addition to simplifying processes and unlocking resources, thus increasing the scheme’s efficiency. Therefore, improving this and other legal frameworks is part of a holistic strategy that optimises the entire process of investing, from the moment a project is conceived until it is awarded. Accordingly, the new legal frameworks seek to decrease the average waiting period until a project is awarded to a private enterprise from six months to four months.

Furthermore, with the goal of fostering investments, the new legal framework for the Works for Taxes scheme simplifies administrative processes and decreases the involvement of the Ministry of Economy and Finance on participative budgeting; each sector is now responsible for certifying and generating future commitments. The law not only eliminates the supplementary application of the Law for Public Procurement, it also empowers and gives autonomy to the special committee assigned to overseeing the process of selecting companies.

Lastly, the law incorporates new sectors into the scheme, including rural electrification, fisheries, urban development, social protection, social development, transportation, communications and justice. When looking at the advantages, it is worth mentioning that the public sector – at the local, regional and national levels – pre-determines the use of financial resources, such as the mining Canon, royalties, customs revenue and regular resources, under the new framework. Moreover, it allows private companies to finance and execute public investment projects and receive third-category income tax breaks. It also allows companies to associate their image with public works that have a strong social impact, know where their taxes are going and improve the efficiency of their corporate social responsibility programmes.

When looking at the government’s achievements in 2016 through the Works for Taxes programme, it is important to highlight that 37% of the total number of projects executed by the national government were done so under this scheme, totalling investments of approximately PEN268m ($79.4m). For 2017 the government plans to increase these investments to PEN1bn ($296.4m) through the Works for Taxes scheme, in addition to PEN500m ($148.2m) that the government plans to allocate for the country’s reconstruction.

Through this plan, the government is looking to incentivise public entities at a local, regional and national level to continue executing public works projects through the Works for Taxes programme. For this purpose, the Intervention Fund for Natural Disasters was set up to finance public works and their maintenance and rehabilitation, Works for Taxes projects in those sectors and government institutions that are in need of the most resources.