Food Rise: How has business been affected by this political and social crisis?

It is almost two weeks since the start of the transport strike in Peru. Faced with this, thousands of entrepreneurs have been affected by rising prices, especially micro, small and medium-sized enterprises (MSMEs). All food prices have been rising, alerting both consumers and entrepreneurs, since according to María Laura Cuya, teacher at Pacífico Business School, the country is massively composed of them.

“This crisis of rising prices affects them in their operation, increasing the costs of capital, infrastructure, logistics, financial management. We are experiencing a very serious impact on the MSME network that affects its competitiveness,” he said.

Due to the pandemic that began in 2020, the informality of mypes, according to Sunat, amounted to 85%, this due to the closure of the formal companies and that aggravates them, since they have been striving to survive and reinvent their models.

In addition, in the days when the immobilization by carriers occurred, about 1 billion soles have been lost.

“A day immobilizing the region with the largest population of people and companies generates serious losses and involves an analysis of relevant reasons. Serious institutions such as the Lima Chamber of Commerce point out that a billion soles are lost. Other experts point out that the figure is 1200 to 1.5 billion. During the pandemic he lost about S/1.2 billion for a day of immobilization nationwide, an important benchmark for seeing the proportion of these measures in the results of the month,” he added.

With regard to the political crisis that has been going through in recent weeks, after the decentralized session of the Council of Ministers was held in Junín and Prime Aníbal Torres cited Adolf Hitler as an example, Jorge Carrillo Acosta, professor and financial expert at Pacífico Business School, said that it affects investment and tourism.

“The investor is going to think twice if he wants to come and invest in the country, he is not going to feel safe. A tourist who wants to visit Lima or Cusco runs the risk of them arriving and being locked in their hotel or missing their flights (due to the shutdown of carriers),” he said.

For his part, Cuya, commented that one of the triggers has been the rise in fuel prices, since that has escalated mobilizations, road blockades and a conflict that has escalated have erratic answers from the government.

“They generate business paralyzation (conflicts and blockages), for example, banks did not operate on April 5, with the consequences that this has on a company's day to day. In a highly informal country like Peru, where thousands of families live from daily work in subsistence economies, political decisions such as the immobilization of a region like Lima's without clear explanations (9.485 million population as of 2017) generate discontent, serious discomfort among the population,” he said.

REMOVE THE IGV TAX ON FOOD

Last Thursday, the Congress of the Republic approved the bill exonerating the General Sales Tax ( IGV) to food of basic necessity until December this year, so that it does not affect in its entirety the increase in food prices. In addition, this law shall apply from May 1 to December 31, 2022.

If there is an accumulated balance of unused tax credit, the holder may request a refund from Sunat, every three months and for a minimum amount of one Tax Unit (ITU), currently S/4,600.

As explained above, Peru is a highly informal country, so it would not affect sellers, since this measure would not apply to them, who would be affected by formal enterprises. Along the same lines, this law not only exonerates chicken, egg, flour, etc. but also more products.

“This law not only exonerates chicken, egg, wheat flour, noodles (pasta) and meat from IGV, as initially proposed by the MEF, but more products are added, such as sugar, concentrated milk and other birds (turkeys, ducks and geese),” Carrillo Acosta said.

It is important to note that to date there are already products in the country from the basic basket that are exempt from IGV, which are fish and seafood, fruits, vegetables, and vegetables (fresh and chilled), among others.

In an interview with Gestión, Carrillo Acosta commented that by exonerating the IGV of certain foods, these prices would not decrease by 18% as projected, but only by approximately 15%.

“It should be noted that this reduction, if transferred entirely to the final consumer, would decrease the prices of these goods by 15.25% and not by 18% as some indicate, since this tax is 18% of the “sale value”, and not the “sale price”, which is the final amount paid (sales value+IGV = sales price),” he says.

For example, if the kilo of chicken cost S/ 10, with the reduction of the IGV it would become worth S/ 8.47, provided that this benefit is transferred by 100%.

“It is also estimated that, in practice, the percentage of price reduction is lower, since businesses recovered the VAT on purchases with the VAT of sales (tax credit), and if the final product is exonerated, the VAT paid on some purchases will become a “cost overrun” (will not be recovered), having to be transferred to the consumer”, adds Carrillo.

Finally, the specialist estimates that this measure would have a total impact of S/ 500 million in lower revenue during 2022.

KEEP READING