Peru can remain competitive with neighbouring Chile despite a recent decision to hike mining taxes.
Peru, the world's third largest copper producer, is able to offset its higher tax on mining companies (which is 3.8 percentage points higher than Chile's) recently imposed by new President Ollanta Humala, because it has cheaper labour and electricity costs, reports Bloomberg:
Peruvian workers at the Andean country’s largest mines are paid on average 2,500 soles ($922) a month, while workers at Chile’s state copper miner Codelco can earn 2 million pesos ($4,000), according to unions in both countries.
Chilean industries pay on average $170 a megawatt-hour for power, triple Peru’s electricity rates, according to the Peruvian Energy & Mines Ministry.
Peru’s new mining law, passed in September, will raise about $1 billion a year. The money is to be directed to the poorest parts of the country and help build schools and infrastructure.
Mining companies will now pay taxes based on their operating profits, ranging from 1% to 12%, rather than the old regime where they paid 1% to 3% based on sales.
There will also be a windfall profits tax ranging from 2% to 8.4% of a company’s net profits.
Humala, who was sworn into office in July, ran a center-left campaign promising to increase social spending while maintaining foreign investment.
Mining accounts for 15% of Peru’s GDP. About 30% of the country’s population is considered to be poor and the 10% lives in extreme poverty.