Originally published in the March 26 edition of World Tax Daily (Copyrights Tax Analysts – www.taxanalysts.com)
Brazil’s federal tax revenue reached a new monthly record for February, even without the recently expired 0.38 percent bank transactions tax (CPMF). What’s more, estimates from the Federal Revenue Department indicate that tax revenue will continue to grow.
Data released by the Federal Revenue Department on March 20 show that in February, collections totaled BRL 44.144 billion (approximately $26 billion), a new record for that month and a 10.23 percent increase over February 2007, after accounting for inflation. Federal Revenue Department Chief Commissioner Jorge Rachid said the trend is expected to continue.
In the first two months of 2008, the Federal Revenue Department collected BRL 111.05 billion (approximately $65.32 billion), which represents an increase of 15.57 percent compared with the first two months of 2007.
The main driver behind the growth in tax revenue is the financial transactions tax (IOF), which was increased in early January. In February IOF revenue was 176.83 percent higher than in February 2007; BRL 1.647 billion (approximately $969 million) in IOF revenue was collected in February 2008. That was BRL 768 million more than the amount of CPMF revenue (BRL 879 million) collected in February 2007.
Rachid acknowledged that the IOF rate increase has contributed to the growth of federal tax revenue, but added that the country’s economic growth has also been a significant factor.
Brazilian companies have been earning higher profits, resulting in larger tax payments.
According to Rachid, revenue from the corporate income tax and the 9 percent social contribution on net income rose 10.47 percent in 2008 compared with the same period of 2007.
Personal income tax revenue has also increased (41.49 percent from 2007), particularly tax revenue from capital gains (78.2 percent from 2007). Import duties (including import tax and the federal excise tax) also contributed to the increase. With a depreciated U.S. dollar, imports have soared, and import duties in the first two months of 2008 increased 35.33 percent over the same period in 2007.
It now may be time for the government to consider reducing some taxes. With a tax reform bill in Congress and mayoral elections in seven months, a continuing upswing in tax revenues could be interpreted by voters as an increase in the country’s overall tax burden — bad news in an election year.
David Roberto R. Soares da Silva