Úrsula Ruiz, Project Manager of Invertir, explained what it is and how this mechanism works to boost investment.
What is Public Works Tax Deduction?
The Public Works Tax Deduction boost the economy through the construction by private companies in exchange for tax deductions.
The mechanism has existed for almost 10 years to help boost construction. Public Works Tax Deduction have reached a investment amount record of 734 million soles last year and it is estimated that by the end of this year, more than 1,493 million soles will be distributed in 114 projects according to ProInversión.
What is it and how does this mechanism work?
For Úrsula Ruiz, project manager for Invertir, Public Works Tax Deduction does not only make it more difficult to generate corruption in large projects, but it does also reduce the start and execution periods of a project from years to only months.
“The mechanism was created to boost the construction sector and to improve efficiency in the management of public investment projects. The process to finish a infrastructural project was quite long, about 5 years. As a result of Public Works Tax Deduction, the times can be reduced to months, “says the specialist.
“It works through an alliance between the public sector and companies. They participate in a competition organized by a state entity. When the agreement is won a contract is signed and the the investment phase starts. This implies a technical file for the project and the project or only the physical onstruction of the project, “she adds.
Public Works Tax Deduction can be used in various sectors such as education, health, water and sanitation, sports, urban habilitation, including justice and defense. The regions that have benefited most are Piura, Arequipa, Áccash, La Libertad, among others.
However, despite a significant amount of investment for this year, there are difficulties in the execution of the projects. How come?
“A major reason is mistrust. The private sector was afraid to relate to a governor or mayor who did not know the mechanism, “says Ruiz.
When the company executes the Public Works Tax Deduction project it is rewarded with a certificate as the work progresses and when it finishes. This serves for the company to deduct the payment of income tax.
On the other hand, the expert points out that another factor is the ignorance on the part of the authorities. “If they don´t know how the mechanism works, they do not know how to relate to it and, in the legally, you have a great task in front of you, with ProInversión as your ally,”she says.
Likewise, the Public Works Tax Deduction fights corruption. As it happens, the agreements are between private companies; therefore, it is impossible to pay tithes or percentages to bribe authorities.
In addition, although risks always exist, in theory private companies seek to carry out works with high quality indices to create a good reputation and improve their image in the impact areas where they operate.
It is important to remember that the law allows the same company to build and finance the project. There are no limits to the financing of a work or to the number of companies that make up a consortium.
Finally, one of the greatest risks is the change of authorities in regional and local governments. How can the effectiveness of Public Work Tax Deduction be reduced in the face of these changes?
“It is not in the case of ministries but changes in authority are a risk factor. A change of authorities is coming next year and it is thought to be a fall. The possibility of reducing the impact is to do carry out the project now with short deadlines or make agreements with the authorities s for the works to continue “, claims Ruiz.
Inteview published in Gestión: http://gestion.pe/economia/que-son-obras-impuestos-2199371 (gestion.pe)