Brazilian Minister of Finance Guido Mantega and Minister of Development, Industry, and Foreign Trade Miguel Jorge on June 12 announced an economic and tax package designed to ensure the competitiveness of certain economic sectors. The announcement was prompted by the appreciation of the Brazilian real in relation to the U.S. dollar.
In the tax area, the package reduces the mandatory term for the use of P.I.S. (Program for Social Integration contribution) and COFINS (Contribution for the Financing of Social Security) credits on the acquisition of capital goods (machinery and equipment). Under the current rules, P.I.S. and COFINS credits arising from purchases of capital goods by corporate taxpayers must be used within 24 months but are not creditable immediately after the purchase of the relevant asset. The June 12 tax package allows for the immediate use of those tax credits for some sectors (specifically, the textiles, shoes, furniture, electronics, and automotive industries).
The government estimates that more than 4,000 companies will benefit from the term reduction and that it will waive tax revenue of approximately BRL 600 million (approximately $309.6 million).
The government also announced a reduction of the export requirement for companies under the special Regime for Acquisition of Capital Goods for Export Companies (RECAP) created in June 2005. Under the existing rules, manufacturing companies that export at least 80 percent of their products are eligible for a suspension of P.I.S. and COFINS on purchases of capital goods. Under the new tax package, the export requirement is reduced from 80 percent to 60 percent.
Among the economic measures announced is the creation of three credit lines with reduced interest rates at Brazil’s development bank (Banco Nacional de Desenvolvimento Econômico e Social) for companies with annual gross income of up to BRL 300 million (approximately $154.8 million). The credit lines together total BRL 3 billion and can be used for working capital and investments and to support exports.
The executive branch did not disclose when and how the package will be put in place, but one or more provisional measures likely will be issued by President Luiz Inácio Lula da Silva in the next few days.
David Roberto R. Soares da Silva