Originally published in the May 27 edition of World Tax Daily (Copyrights Tax Analysts – www.taxanalysts.com)
President Luiz Inácio Lula da Silva’s allied parties in Congress are finalizing a law project designed to re-create the bank transactions tax (CPMF) and are considering creating a new alcohol and tobacco tax.
The CPMF expired on December 31, 2007, after the Senate rejected its extension. The new tax would have a lower rate, 0.1 percent, compared with the 0.38 percent rate of the expired CPMF. Two other major differences are that the new contribution would be permanent (CPMF was provisional and required extensions every few years) and would be earmarked exclusively for public health (CPMF was originally conceived with the same purpose, but its revenue was eventually diverted for other purposes).
The reason for the re-creation is the regulation of Constitutional Amendment 29 of September 13, 2000. Since 2000, Amendment 29 has required the government to invest in public health the equivalent of the 1999 federal health budget plus 5 percent. From 2001 through 2004, the investment in public health should have been increased in proportion to the positive growth of Brazil’s GDP. However, Amendment 29 requires a complementary law to regulate many of its provisions; that law was never enacted.
Because Congress is debating the regulation of Amendment 29 and Brazilian legislation requires the disbursement to have a corresponding source of funding, the allied parties have deemed a new CPMF an appropriate and convenient source to fund public health. Lula da Silva strongly supports the idea, after being disappointed that the CPMF’s extension was defeated in 2007.
But a 0.1 percent CPMF would add only BRL 10 billion every year, which the allied parties believe would be insufficient to cover the additional public health expenses mandated by Amendment 29.
Therefore, they are considering creating a new tax that would be levied only on liquor and tobacco products. The tobacco tax alone is estimated to be capable of generating approximately BRL 2 billion of additional tax revenues every year.
Re-creating the CPMF will not be easy, though. It will be very difficult for the government to justify to the public the creation of a new tax when, even without the 0.38 percent CPMF, Brazil’s federal tax revenue has reached new records every month since January.
Also, creating a new CPMF would require the government to have 308 favorable votes in the House of Representatives and 49 in the Senate. Although attaining votes in the House should be easy, attaining enough votes in the Senate would be difficult. It was a lack of votes in the Senate that defeated the government’s measure in late 2007 that tried to extend the CPMF until 2011.
David Roberto R. Soares da Silva