Peru is taking steps to exempt more liquid stocks from capital gains tax to boost trading and avoid being reclassified as a frontier market by MSCI Inc., Finance Minister Alonso Segura said.
The tax has affected trading volumes in a stock market hurt by a commodities slump and reduced appetite emerging market assets since 2012, Segura told lawmakers Wednesday.
The Finance Ministry sent Congress on Monday the tax proposal after MSCI said Aug. 13 Peru no longer meets the criteria of its emerging market category as volumes dwindle. Peru’s government and stock exchange disagrees with MSCI’s proposal and will make the case with MSCI for Peru to remain in the emerging-market category, Segura said .
“Developing the capital markets is fundamental if we want to develop as a country,” Segura said. The measures already taken such as lowering trading fees, will cause trading volumes to take off, he said.
Changing Peru’s status to frontier market would spur a “very fast” exit by foreign fund managers from the local stock market, Lima Stock Exchange Chairman Christian Laub told lawmakers. Getting back into MSCI’s emerging markets category likely would take as long as a decade, Laub said.
Segura said Dec. 8 Peru wasn’t ready to eliminate the 5 percent tax, after the Lima bourse said it was suffocating the stock market by deterring investors.
Introduced by the previous government in 2010, the tax was expected to raise at least 200 million soles annually for public works, the finance ministry said at the time.