Brazilian Government Denies Plans To Increase Taxes On Bond Investments

by Mike Godfrey, Tax-News.com, Washington

25 April 2008

The Brazilian government has denied claims that it intends to increase the tax burden on foreign bond investors, according to reports.

Speaking to Reuters on Wednesday, Deputy Treasury Secretary, Paulo Valle responded to media speculation on the matter, following the introduction earlier this year of the IOF (Imposto Sobre Operacoes Financeiras, or Financial Operations Tax) on foreign bond investment at a rate of 1.5%.

He told the news agency that:

"There is nothing under consideration in the sense of creating a new tax or increasing the IOF for foreigners."

Tax reform issues have been to the fore in Brazil in recent months, but in March, doubts were expressed over the likely passage of proposed tax reforms through the Brazilian Congress this year.

President Luiz Inacio Lula da Silva had, the previous month, put forward proposals for the unification of several federal taxes into a single value-added tax.

The government reportedly hopes to secure approval for this, and several other economy-boosting measures, by the end of the year.

However, issues likely to complicate this process include municipal elections being held later this year, and the opposition's stance on presidential decrees, which have been relied upon to a great extent by successive Brazilian presidents.

It is thought to be unlikely that Lula will be open to surrendering any of his powers in this area, and observers have suggested that this could prove to be a sticking point in negotiations over other issues, including the planned tax reforms.

Although the business community has widely welcomed the move towards simplifying the country's tax system, the overall tax burden on them is still viewed as high.

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