Originally published in the November 16 edition of World Tax Daily (Copyrights Tax Analysts – www.taxanalysts.com)
Brazil’s Senate Commission of Constitution and Justice (CCJ) on November 13 approved an extension of the 0.38 percent bank transactions tax (CPMF). The vote was 12-9, with one abstention.
With the commission’s approval of the extension, the executive branch has won the first battle of a war that promises to be fierce during the review and vote on the CPMF extension, in two rounds, in the full Senate.
Allied parties rejected the opinion of Senator Katia Abreu (of the opposition Democrats Party), who did not recommend the CPMF extension. She said the extension is not necessary because of continually increasing federal tax revenue and budget surpluses. After the rejection, Senator Romero Jucá (of the allied Brazilian Democratic Movement Party) delivered an opinion favoring the CPMF extension, which was approved.
The extension project, Constitutional Amendment Project 89/2007, now will be reviewed and put to a vote, in two rounds, before the full Senate. The first round is expected to take place between December 6 and 11.
However, the commission’s approval of the CPMF extension does not assure the government a final victory in the full Senate, as negotiations during the approval process in the CCJ made some allied senators turn against the extension. During the negotiations, two allied senators, Pedro Simon and Mozarildo Cavalcanti, who threatened to vote against the extension, were replaced by two other allied senators, deemed more reliable by the government, in order to reject Abreu’s opinion. The replacement angered Simon and Cavalcanti, who now say that they will vote against the CPMF extension in the full Senate. The government needs 49 favorable votes in the two rounds to approve the extension.
In exchange for the CPMF approval by the CCJ, the executive branch has made some promises that it now must put in place, including a promise to submit to Congress by November 30 a provisional measure containing unspecified tax reform proposals, and another providing for CPMF rate reductions during the next four years (the rate would be reduced to 0.36 percent in 2008, to 0.34 percent in 2009, to 0.32 percent in 2010, and to 0.30 percent in 2011).
If the government fails to comply with those promises, the extension of the CPMF will become almost impossible.
David Roberto R. Soares da Silva