“Infrastructure Works by Tax Law” a mechanism to finance government projects through private investment

roads Private companies are able to finance and execute regional and local government projects under Peruvian Law N 29230 “Infrastructure Works by Tax Law”. This is a mechanism which enables private companies fund projects to later recover the full investment back by not paying the respective equivalent income tax amount. Regional and local governments in turn will give up receiving equivalent resources linked to canon, royalties and customs revenues from private companies.

There are many advantages in getting this mechanism executed, Denisse Miralles, Pro-Inversion Director highlighted that the period of time on which private companies execute infrastructure projects makes a huge difference as governments would be going normally through a lengthier bid, award and execution process due to its normal regulations. Private companies would not only execute the project faster but also they would do it perfectly as their reputation will be under scrutiny.

Under this mechanism, private sector companies are making sure their income taxes are utilized in benefit of the regional and local government creating therefore an ecosystem on which private companies, governments and communities are getting the most of the scenario. Infrastructure projects that are usually executed through this mechanism are most of the time linked to roads, education, energy, healthcare and sanitation.

“Infrastructure Works by Tax” Law was put in place in 2008 getting no major commitment or attention from the private sector at the beginning, Pro-inversion has been working on having the Law explained across the country through seminars as well as events in conjunction with several associations such as the Peruvian Mining, Petrol and Energy National Association. Some private companies are still reluctant to get the mechanism implemented due to the lack of knowledge of the legal documentation attached to it.

Law firms across the country are also working hand in hand with the private sector as the law has recently evolved. “Infrastructure Works by Tax Law” can be used not only to execute the project but also to maintain it. In a similar way, only regional and local governments were the public entities receiving the benefits of the projects so far, now public universities are also eligible for that.

Since 2008, there have been so far 82 projects executed or under execution linked to the Law N 29230, 42 private companies have participated on this mechanism along with 9 regional governments and 47 local governments. Pro-inversion stated that since 2009, there are also so far USD 365 Millions invested on these projects being transportation (51%) and sanitation (23%) infrastructure linked projects the most representative followed by healthcare and education (both 15%).

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