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Brazil Announces More Stimulus Measures

by Mike Godfrey, Tax-News.com, Washington

12 December 2012


Following lackluster economic growth during the third quarter of the year, Brazil's Finance Minister Guido Mantega has announced a slew of new measures, including payroll tax breaks for the construction industry, in an effort to revitalize the economy.

Mantega announced that new payroll tax breaks will be handed to Brazil's construction industry to support output. In addition, the government will extend the scope of an exemption from the nation's financial transactions tax, IOF, to foreign loans with a maturity of over a year. A 6% rate will continue to be levied on loans with a duration of less than a year.

Earlier this month, Mantega announced plans to eliminate sales tax competition between provincial authorities in respect of the locally-levied sales tax, ICMS. Over the next eight years, the government intends to reduce the autonomy of provincial authorities in respect of setting ICMS rates, and instead limit states to a 4% sales tax rate. Mantega explained the reform would eradicate infighting between Brazil's 26 states, and make the complex Brazilian tax regime less onerous.

The government has been forced to introduce yet more stimulus measures following a continued decline in the rate of economic growth. Back in February 2012, when the government released its 2012 Budget, an economic growth rate of 5% was targeted. But despite a number of measures, in particular to support retailers and manufacturers of household goods and automobiles, the government revised its target in September to 2%. The slowdown has not abated, according to new statistics from the government, which show that the economy grew by just 0.6% in the third quarter of 2012.

TAGS: tax | economics | business | value added tax (VAT) | sales tax | fiscal policy | payroll | Brazil | tax breaks | construction

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