The Brazilian government has announced that it will cut taxes on industrial machinery and gains from stock and fixed-income holdings in an attempt to stimulate investment in the country’s capital markets and spur the economic recovery.
Under the new measures, to be implemented on January 1, 2005, tax on equity investment gains, including equity funds, will fall to 15% from 20%. Meanwhile, a new tax structure has been devised for fixed income investments to encourage the purchase of longer-term debt maturities as a result of which: gains on bond investments held for less than six months will be taxed at 22.5%; those investments held between six and 12 months will attract tax at 20%; those on investments held between 12 and 24 months will be taxed at 17.5%; and those on bonds with a maturity beyond 24 months will be charged at a rate of 15%.
Furthermore, mortgaged-backed securities will be exempt from taxation to encourage housing development and the capital goods tax will be reduced to 2% from 3.5%.
An additional measure will also see the IOF tax on life and accident insurance polices reduced to 4% from 7% as of September.
The tax incentives, announced by the government on Friday, are reported to be worth more than BRL2.5 billion (US$823 million) annually.
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