Peruvian winemakers concerned about the increase in the Selective Consumption Tax

A woman attends a warehouse in Lima (Peru). EFE/Paolo Aguilar/File

The Association of Winemakers of Peru (ABP) expressed its concern about the imminent increase in the Selective Consumption Tax (ISC) that puts at risk the sustainability of the more than 535,000 businesses nationwide represented by this union.

In this sense, the ABP has already shared its concern with the Ministry of Economy and Finance (MEF) and with members of the Commission of Economy and Finance of Congress, exposing the evidence of the perverse impact of illicit trade on formal wineries. And it is that as if the difficult situation of the pandemic were not enough, these businesses must face unfair competition from informal merchants.

“We constantly strive to keep our businesses formal and this means complying with tax obligations, while illicit trade sells contraband products of dubious origin at prices 3 times lower. If we sold those cheaper illicit products in our warehouses, we would run the risk of being harshly sanctioned with embargoes and business closures, but informal merchants are not controlled. We suffer unfair treatment that harms thousands of families in our country,” explains Andrés Choy, president of the Association of Winemakers of Peru.

The alarm of the ABP increases in these first weeks of the year, because in this period the MEF has been applying annual tax increases to products sold in warehouses, which raise their prices and lose competitiveness compared to those from illicit trade. This annual indexation, which includes the Selective Consumption Tax, focuses on further taxing legal products –formal brands of beverages, food, cigarettes, etc.– and generates larger gaps that benefit criminal organizations dedicated to smuggling.

“With these annual increases, what they achieve is to encourage the consumption of products of illicit origin instead of guiding the lower consumption of certain products, which causes great damage”Choy warns.

ILLEGAL PRODUCTS GAIN GROUND

A recent investigation by Macroconsult takes the case of legal cigarettes, taxed with an ISC that currently represents 5 times the value it had at the beginning of 2016. The study concludes that this increase in the price of legal cigarettes due to the ISC has increased demand of illegal cigarettes significantly since 2019 (according to another study by Kantar World Panel, at the end of 2021, 48% of cigarette consumption in the country comes from illegal trade).

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