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Brazil Eases IOF Tax

by Mike Godfrey,, Washington

22 June 2012

Effective immediately, the Brazilian government has reduced the scope of the financial transactions tax on foreign loans after concerns about the strength of the domestic currency eased.

To help devalue the nation's currency, which was seen as damaging Brazil's competitiveness, the government had previously announced two successive changes to the terms of the nation's 6% IOF tax on foreign loans in March 2012.

The first change increased the scope to cover foreign loans with a maturity period of up to three years from two, effective from March 1, 2012, but later that month authorities decided to extend the maturity period covered by the tax further to five years.

Now the 6% rate is restricted once more to two-year terms only, with the value of the Real against the Dollar having fallen significantly, from 1.8 Reals to the Dollar to around 2 to 2.1 Reals to the Dollar, sparking concerns among policy makers that higher import costs could trigger undesirably high inflation.

TAGS: tax | business | Brazil | currency | inflation

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