Peruvian Tax Law Sparks Debate: Will Increased Municipal Funding Lead to Progress or Corruption?

Peruvian Congress Approves Controversial Tax Redistribution: Will it Empower Municipalities or Fuel Corruption? Lima, Peru – The Peruvian Congress recently passed a law altering the distribution of the country's general sales tax (IGV). This change increases the share allocated to municipalities from 2% to 4% of the total IGV revenue. While proponents argue this will boost local development, concerns are rising regarding the potential for misuse and increased corruption. The law's impact is particularly significant given the history of low budget execution rates by Peruvian municipalities. Data from 2024 reveals that only four out of more than 1800 municipalities successfully spent 100% of their allocated funds on public works. "This raises serious questions about the government's ability to effectively manage public funds," stated Jorge González Izquierdo, a prominent economist interviewed in the video. Adding to these concerns is the speed at which the executive branch is expected to approve the legislation. Reports suggest it may be approved without thorough review, potentially overlooking critical details and risks. Congressman Illich López, a key supporter of the law, argues that safeguards are in place to prevent misuse, emphasizing that funds will be directed towards specific investment projects. However, critics remain skeptical. The redistribution will occur gradually over four years, with 0.5% increments annually. While some municipalities may benefit, the potential for corruption remains a significant obstacle to successful implementation. The situation highlights the ongoing challenges Peru faces in balancing financial decentralization with effective governance and accountability.