Brazil's Senate Votes To Extend Financial Tax

by Leroy Baker, Tax-News.com, New York

14 November 2007

A panel of Brazilian lawmakers have agreed to the government's request that the country's financial transaction tax be extended, but on the proviso that rates are lowered in future.

The proposal to extend the tax, known in Brazil as the CPMF, was approved by the Senate's Constitution and Justice Committee on Tuesday night.

The CPMF, a 0.38% charge on all financial transactions carried out in Brazil, is due to expire at the end of this year unless the Senate approves a new extension. The tax is opposed by many lawmakers, some of whom want to see it lapse, while others are suggesting that the tax is curtailed so that lower income groups do not have to pay it. However, the CPMF, which subsidises the public health system, is something of a cash cow for the government, providing almost 10% of its total revenues.

Understandably, the government is reluctant to let the tax lapse, and has warned that vital spending programmes could face cutbacks without its revenues, but it has been forced to compromise with the Senate in order to build support for its extension. By way of a concession, the government has accepted a plan that will see the CPMF fall by 0.02% annually until it reaches 0.3% in 2011.

According to Finance Minister Guido Mantega, who has agreed to the measures, this cut alone will reduce the government's revenues by 20 billion reals (US$11.5 billion). Any further cut, he argued, would "reduce investment".

The proposal has already been approved by the lower chamber, but now goes to a full vote in the Senate, where it must gain support from at least 49 of the upper chamber's 81 members by the end of the year in order to go into effect in 2008.

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