BRAZIL INCREASED SOME TAXES and is considering reforming others

BRAZIL INCREASED SOME TAXES and is considering reforming others

January 01, 1999

The Brazilian Senate voted on January 6 to extend a financial transactions tax, called CPMF, for three years and to increase the rate from the current 0.2% to 0.38% in 1999 and 0.3% in 2000 and 2001. The tax applies to all banking transactions. A second-round vote will be held in the Senate on January 19, after which the proposal will go to the Chamber of Deputies.

The rate for social security contributions by companies, known as COFINS, will increase from 2% to 3% on February 1. The rate is applied to gross receipts of a company. The extra 1% will be creditable against corporate income taxes, but the credit must be used in the same year. It cannot be carried forward. The increase has the effect of increasing tax collections from companies with tax losses.

Meanwhile, the government sent a broad tax reform plan to Congress in late November, its third since 1995. Under the plan, a value added tax would be levied at the federal level, with a uniform rate structure and base, in place of so-called ICMS taxes that are collected currently by states. A new federal excise tax would also be imposed on a limited number of products, including telecommunications, energy and fuel. The COFINS tax would be eliminated. The CPMF tax on financial transactions would be made permanent.

There is still no consensus among political leaders about the broad reforms. The finance minister said he hopes they will pass Congress during 1999 so that they can take effect on January 1, 2000. Congressional leaders expect a vote on the reform plan in June.