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Brazilian Government Thwarted In Plan To Extend Transaction Tax

by Mike Godfrey, Tax-News.com, Washington

14 December 2007


It emerged on Thursday that Brazil's President, Luiz Inacio Lula da Silva has suffered an embarassing political defeat, after his government failed to secure the votes needed to renew the CPMF financial transactions tax.

Despite negotiations with the opposition to secure an extension of the levy - which would have brought in an estimated US$22 billion in revenue next year - until 2011, the coalition government fell short of the 49 votes (out of 81) needed in the Senate for the tax to be renewed.

The 0.38% tax is imposed on various types of financial transactions, including cheques, transfers, and bank withdrawals, and revenue from it has traditionally been used by the government to fund spending on infrastructure and health projects.

It is not yet known whether the President will put the legislation before the Senate again next year.

Even if he does and is successful, however, observers suggest that this latest defeat is likely to put a significant dent in the government's finances, which may need to be patched with tax rises elsewhere, or spending cuts.


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