Financial System, Informality, and Tax Evasion in Peru

According to the Peruvian National Institute of Statistics and Informatics (INEI), a productive unit is considered informal if it is not registered with the tax administration. This research identifies those informal units that have been granted at least one credit in the financial system, classifies them by financial institution and type of credit, and estimates the corresponding amount of evaded taxes. For this purpose, data from the tax administration and the financial system were analysed. The main finding is that, as of December 2014, there were approximately 1.8 million informal units (about 19% of the total number of debtors in the financial system as a whole) who had been granted at least one credit in the financial system. This provides powerful evidence that there is a significant margin to broaden the tax base. It was also found that the Rural Banks (Cajas Rurales), Small and Micro Enterprise Development Companies (Edpymes), and Finance Companies registered the highest rates of informality, both in terms of the number of customers and credit balances. In addition, the loans obtained by informal units were granted mainly by Finance Companies, Municipal Savings and Loan Banks, and Banks. These results suggest that it would be prudent to monitor and quantify the potential risks to financial stability that might emerge from the presence of informality in the financial system. Finally, the amount of evaded taxes in 2014 by the identified informal units was approximately 0.7% of GDP.