Originally published in the September 13 edition of World Tax Daily (Copyrights Tax Analysts – www.taxanalysts.com)
Because it has had difficulties persuading Brazilian lawmakers to approve “as is” the constitutional amendment project that extends the 0.38 percent bank transactions tax (CPMF) to 2011, Brazil’s executive branch is considering several options that may lead to a rate reduction.
Within the next few days, the executive branch will inform the House CPMF Special Commission of alternatives to CPMF extension. The opinion of lawmaker Antonio Palocci — Brazil’s former finance minister who is now in charge of consolidating amendments to the project — will then be subject to debate and a vote by the special commission.
Although the executive branch has been reluctant to accept any changes to CPMF until now, allies in Congress have concluded that the mere extension of the tax with the same rate is not politically viable.
Lawmakers are starting to consider options, including a gradual rate reduction in the coming years, which could be of 0.01 or 0.02 percentage points per year. This reduction could start as soon as January 2008. The impact to tax revenue is estimated to be BRL 1 billion (approximately US $500 million) per year per 0.01 point of CPMF rate reduction and is expected to amount to BRL 39 billion in 2008.
Another alternative includes a variable rate reduction dependent on the previous year’s increase in federal tax revenues (that is, the higher the increase in tax revenues, the more the reduction in the CPMF rate in the following year), although no further clarification on this mechanism has been released.
It is clear that as the year-end arrives, it will be more difficult for the government to reject any reduction or other change to CPMF. Time will tell whether the government is willing to risk all of the CPMF revenue if the measure is not approved by December 31. It has been difficult for members of the executive branch invited to debate CPMF in the special commission to show a clear reason to maintain CPMF “as is” after constant records in tax collections in 2007 and an increase in (sometimes unnecessary) public expenses.
David Roberto R. Soares da Silva