According to a Finance Ministry spokesperson, Brazil's government is currently considering whether to do away with a tax on financial transactions on stock exchange trades. The move comes after the 0.3 per cent tax, called CPMF, was repeatedly attacked by financial organisations, who claim the tax has the effect of accelerating the movement of trading in Brazilian stocks to foreign markets.
Alfredo Rizkallah, chairman of the Sao Paulo Stock Exchange, maintains that the transaction tax is contributing in no small way to the destruction of the capital markets in Brazil. Indeed, figures from the Sao Paulo Stock Exchange do show that trading is suffering a significant decline. Trading volume on the exchange plunged 46 per cent to $5.9bn in September from $10.9bn in August.
According to government spokesman Marcelo Pontes, no final proposal has been drawn up concerning the scrapping of the tax. He said: 'The CPMF is being debated at various levels of the government.' However, Pauderney Avelino, vice-leader of the Liberal Front Party in the Lower House, said the government already has a proposal on the tax exemption ready to be sent to Congress.
The latest powerful group to come out against the tax is the Association of Financial Executives, or IBEF, which on Friday issued a report saying the tax was a big barrier to the formation of savings. Studies by IBEF, in conjunction with the Stock Exchange, estimate collections from the tax in the capital markets will reach $108 million this year. Ney Ottoni de Brito, IBEF president, stated: 'We hope to convince the government that this process is not rational. It is not worth closing the capital market for that amount of money.'
The 0.3% tax on all financial transactions is expected to contribute significantly to treasury revenues, which are set to reach $7.5 billion this year. The figure will be even greater in 2001 if a planned increase in the transaction tax to 0.38 per cent goes ahead.
Sao Paolo Stock Exchange chairman Rizkallah argues that if the tax was scrapped, the Brazilian stock market would be able to compete with other exchanges, such as the New York Stock Exchange, as the size of Brazil's economy gives it an advantage over exchanges in smaller countries such as Argentina or Chile.
While financial organisations lobby hard for an end to the tax, the government appears to be divided on the issue. Arminio Fraga, the president of the central bank, is repeatedly quoted in the Brazilian press saying the tax reduces stock trading in Brazil, while Internal Revenue Secretary Everardo Maciel, could try to resist any changes in the tax to avoid a loss in revenue.
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