Brazilian Government Repeals Stock Transactions Tax

by Carla Johnson, Investors Offshore.com

10 September 2001

There was relief in the Brazilian financial sector last week, as the government announced that before the end of the year, it would be exempting stock trades from the 0.38% CPMF financial transactions tax.

The decision came following protests from Brazilian traders at the Sao Paulo stock market, the Bovespa. Trading was interrupted for over an hour, as workers carrying signs reading 'Save Our National Market' railed against the tax, which it is estimated makes it almost twice as expensive to trade a Brazilian blue chip on the Bovespa as to trade it as an American Depository Receipt on the NYSE. Protesting traders and brokers said that was not the process of ADR trading on the US exchanges that they object to, only having to compete with it at a disadvantage.

The tax has been blamed for the precipitous decline in trading volume on the Bovespa, and Raymondo Magliano Filho, president of the stock market, spoke recently to the New York Times about the depths to which the Bovespa has fallen as a result of this tax. 'It's laughable that we are the ninth economy in the world, yet trade only 350 million reais ($136 million) a day,' he said. It has been reported that of recent times, the Bovespa has not had enough trading volume to cover its operating costs.

However, in the wake of the government's decision, investors are starting to look at Brazil with new eyes, a fact which must be slightly worrying for the Chairman of the New York Stock Exchange, Dick Grasso, who commented last week that the repeal of the tax could conceivably stem the flow of business to New York. 'Without the CPMF, there is more chance that we would buy through the Bovespa, since you would have a similar, if not lower, transaction cost in Brazil,' observed Bill Rudman, head of the Latin America group at West AM, perhaps confirming Mr Grasso's worst fears.

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