Peru's presidential field split over mining taxes

Reuters News
Posted: Mar 21, 2011 11:29 AM

By Caroline Stauffer and Teresa Cespedes

LIMA, Peru (Reuters) - Leading candidates in Peru's tightening presidential race are split over whether mining companies in one of the world's top mineral exporters should pay higher taxes.

Front-runner and former President Alejandro Toledo says Peru should consider taxing windfall profits from surging global commodities prices to help finance anti-poverty programs. Leftist Ollanta Humala, who is in fourth place, also wants to hike taxes.

Their positions have upset the country's association of mining companies, which has criticized the candidates for making "populist promises." Miners say higher taxes would threaten some $42 billion in foreign investment planned over the next decade in a sector that has long been the engine of growth in an economy that expanded 9 percent last year.

The other three main candidates in April 10 election -- lawmaker Keiko Fujimori, former Lima Mayor Luis Castaneda, and former Primer Minister Pedro Pablo Kuczynski -- have frowned upon any proposed changes to tax rules in Peru, which is a leading producer of gold, silver, copper, zinc and lead.

Toledo, who negotiated the U.S.-Peru free trade agreement during his first term from 2001 to 2006, has said Peru's mining towns aren't seeing the benefits of higher commodities prices.

"Obviously we need to take advantage of this price bonanza to get more resources for a state with many needs and a low tax collection rate compared to other countries in the region," said Jaime Quijandria, a former mining minister who is part of Toledo's economic team.

But Kuczynski, a former Wall Street banker who years ago was Peru's mining minister, said windfall profits are cyclical, making them unreliable as a source of revenue.

"That is not the right strategy," Kuczynski, who is rising in polls but still in fifth place, told Reuters. He said mining firms already generate 60 percent of all income taxes paid by businesses in Peru but only represent 7 percent of the economy.

"Even less so if so-called windfall profits are supposed to finance everyday expenditures such as education and security ... we just saw copper prices fall 10 percent in one day -- where are the windfall profits there?"

Ultranationalist Humala, who has moderated his tone since nearly winning the 2006 election on a platform endorsed by Venezuelan President Hugo Chavez, says the state should raise income taxes to more than 40 percent from 30 percent.

Though Humala lagged earlier in the campaign, the latest polls show him on the heels of Fujimori and Castaneda, giving him a chance of making it to a second round runoff on June 5. He also favors raising royalties on oil and gas producers.

Castaneda, who was once the favorite but has slipped to third as he is dogged by corruption allegations he has denied, says Peru should protect investment by ensuring contractual stability for mining firms.

Fujimori, daughter of jailed former President Alberto Fujimori, has indicated her policies would follow those of her right-wing father and says she would "maintain the rules of the game" for investors.

(Editing by Terry Wade)