The Government of Peru (A3 stable) last month announced changes to excise taxes on vehicles, fuel, tobacco products, alcohol, and sugary beverages, Moody's Investors Service recalls in its latest report.
The changes seek to reduce the negative externalities that consumption of the aforementioned goods produces on individual health, society, and the environment.
"The changes to excise taxes will have varying effects on government revenue, increasing collections in some cases (like sugary beverages) while potentially decreasing revenue in others (like cigarettes) where demand will likely be disincentivized,"
Moody's expresses in this sense.
It points out the overall environmental and social benefits of the new
tax structure will support Peru's medium-term growth outlook.
Citing the World Health Organization (WHO), Moody's notes the annual costs from non-communicable diseases —including alcohol abuse, tobacco smoking, consumption of sugary beverages, pollution and others— are as high as US$24 billion in Peru, with respiratory diseases being one of the main culprits for the loss of output.
According to the report, taxes on fuels were originally adopted using a
progressive scale, but the scale was progressive based on who could bear the higher costs of paying higher excise taxes rather than the degree to which the fuel was harmful to the environment.
"As a result, the cleaner, more expensive fuels consumed by higher income segments bore the heaviest excise tax. This created incentives for switching to dirtier, cheaper fuels that carried lower taxes. The new structure aims to correct this distortion," it underlines.
The credit rating agency adds empirical evidence suggests that weight gain in individuals that consume sugary beverages results in acute health problems and an increased likelihood of developing additional severe illnesses.
In this sense, "the knock-on effects of these illnesses are increased health expenditures that reduce disposable income and drag consumption within the economy."
"More importantly, increased incidence of illnesses can lead to greater worker absenteeism and detract from productivity," it concludes.