Tax changes endangers Peru’s beer industry

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The announcement of the Ministry of Economics and Finance worried the producers of this product because of increases in national prices

The last announcement made by the Peruvian Ministry of Economics and Finance (MEF) anguished the country's beer industry, from large companies to artisanal ones. Through Supreme Decree 181-2019-EF, the institution modified the tax that is applied to alcoholic beverages, including beer.

Leer en español: Los cambios tributarios ponen en peligro la industria cervecera de Perú

The modification would be applied to the Selective Consumption Tax (ISC) and to the Income Tax (IR) to improve the Peruvian tax system. Now, the method with which the beer is taxed goes from a mixed scheme to a fixed amount of 2.25 Peruvian soles per liter. The rates of alcoholic liquids up to 6 degrees are 1.25 Peruvian soles per liter with an ISC of 20%, according to the newspaper Perú.21.

The RPP portal speculated that this change should not generate an increase in the prices of this product since the new system is similar to the previous one. Deputy Economy Minister Michel Canta specified that this is because "the industry evaluates the increase as any sales strategy and can do it at any time".

Effects on the national industry and its consumers

A statement published by Backus, a company that occupies more than 90% of the local beer market, announced that they would be increasing their prices by 10%. The statement of the company, which has brands such as Pilsen, Cristal and Cusqueña, said that under this new system, lower alcohol beers would be more affected, while those with greater alcohol level will face a less heavy tax burden.

The company explains that the gravel scheme implies the taxes of the beer value for sale raise up to 80% (before it was 70%). An alcoholic beverage that is not beer, with a grade below 6 pays 20%, while a drink between 6 and 12 grades pays 25%, and one between 12 and 20 pays 30%. That being the case, beer would be paying five times more tax than other drinks with higher alcohol content.

In short, the beers from the portfolio produced during 2018 paid an ISC equivalent to 1.68 soles per liter, 0.57 soles less than the 2.25 soles that are currently levied on beers.

The AJE Group, with the well-known Tres Cuervos beer, would also be considering raising its prices after reviewing how much it would increase so that it does not greatly impact consumers nor the company. This brand would be one of the most affected with the increase of the tax since they are going to pay a 52% rate after paying 35%.

On the other hand, an article in the financial media, Gestión, affirms that craft brewers will be the most affected by this modification to the ISC.

According to Estefan Farfán of the Association of Craft Brewers, this would have a great impact on the guild because it doesn't allow their own product development. Being these small enterprises the ones that use a greater amount of inputs, and unlike the one that is produced on a large scale, the beer they sell does not exceed 10 Peruvian soles. In addition, since they use more inputs, they pay between three and four times more in taxes than the industrial ones. These, plus the production costs, are not necessarily the same as those used by others.

The alcohol content of these beers is between 5 and 10 degrees, and the price of those that reach up to 6 will have an impact on their price.

According to ProChile, Peru is one of the most striking countries in the region for this industry, since beer is the preferred alcoholic beverage, representing more than 95% of the volume of total sales in 2018.

In other Latin American countries

One of the most recognized cases in the region is Bolivia, where the Pro Leche Fund was created. This is financed by means of a direct tax on the beer market and any imported alcoholic beverage. Their purpose would be to use these resources to help pay a fair price to the country's milk producers without having to increase the cost to the final consumer.

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This Fund was created by Law 204 in 2011 with the establishment of the retention of 10 cents of each liter of Bolivian beer and 50 cents to the imported alcoholic beverages. According to the Red Patria Nueva, until 2015 they had raised 50 million Bolivian pesos.

On the other hand, in Colombia, the announcement of the increase in the tax on sugary drinks and beer has also been controversial. Bavaria, a company that governs much of the market in the country, pronounced last year and clarified that they were concerned, because the beer market would be affected, because they already had a tax burden of 19% of the Value Added Tax ( VAT), plus a consumption tax rate of 48%, completing a total of 67%. With the new increase, it would be reaching a total increase of 75%, making it one of the most taxed brewing industries in the world.

LatinAmerican Post | Valentina Moya

Translated from "La industria cervecera de Perú peligra ante cambios tributarios"