Originally published in the September 11 edition of World Tax Daily (Copyrights Tax Analysts – www.taxanalysts.com)
Brazil’s 2008 federal budget proposal and the 2008-2011 Pluriannual Plan (PPA) submitted by the executive branch to Congress in late August indicate that nothing is going to change in terms of Brazil’s tax burden; it will continue to grow.
Both documents show that Brazil’s federal tax burden1 (the amount of taxes taken in by the federal government) will increase in 2008, although members of the executive branch deny plans to raise any existing federal taxes or contributions. Including federal and social security tax revenues, the federal tax burden is expected to reach 24.9 percent of Brazil’s GDP in 2008, exceeding the most recent estimate of 24.15 percent. When President Luiz Inácio Lula da Silva took office in 2003, the federal tax burden amounted to 21.1 percent of Brazil’s GDP.
Members of the Ministry of Planning and Budget and the Ministry of Finance deny that the higher tax burden will come from tax increases, saying it is a consequence of economic growth, which is expected to reach 5 percent in 2008.
Critics argue that it is time for the government to consider major tax reductions. However, neither the 2008 budget proposal nor the PPA proposes any major cuts in federal spending, which in turn reduces the likelihood of any kind of tax reduction. Federal payroll costs, for example, are expected to grow from 4.59 percent to 4.75 percent of GDP as a result of increases in the number of federal civil servants and general adjustments to their compensation.
One budget item that is under fierce debate is the 0.38 percent bank transaction tax (CPMF). Opposition parties say the executive branch cannot include BRL 39 billion in projected CPMF tax revenues for 2008 in the budget because a constitutional amendment project extending the CPMF to 2011 is still under debate in the House of Representatives (and then must be forwarded to the Senate), and the government cannot assume that it will be approved “as is” by Congress. (For prior coverage of the bank transactions tax (CPMF), see Doc 2007-19047 [PDF] or 2007 WTD 160-3 .)
The chances that Congress will reduce the CPMF rate are increasing every day as the government fails to provide a concrete reason not to reduce it. Further, political scandals involving Senate President Renan Calheiros, a strong government ally, have weakened the government’s ability to negotiate the smooth approval of the CPMF extension. Calheiros has been accused of accepting bribes to funnel public works contracts to a construction company.
FOOTNOTE
1 The federal tax burden excludes tax revenues from Brazil’s 27 states and more than 5,000 municipalities.
END OF FOOTNOTE
David Roberto R. Soares da Silva