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Brazil Increases Taxes on Fuels

Imports and Credit
By Lise Alves on January 20, 2015

The government seeks to obtain an extra R$20.6 billion in revenues
with the measures.
By Lise Alves, Senior Contributing Reporter
SÃO PAULO, BRAZIL – The Brazilian government’s new economic team
announced the first measures which they hope will reduce the country’s primary
deficit and put the economy back into the path of sustainable growth. Finance
Minister, Joaquim Levy, announced on Monday, the government will increase
taxes on fuels, imports and financial operations, with the goal of obtaining an
extra R$20.6 billion in revenues.

Brazil’s new Finance Minister, Joaquim Levy, announces measures to increase federal revenues, photo by Wilson
Dias/Agencia Brasil.

“We are taking a series of actions to re-balance public accounts with the
objective of increasing the confidence and understanding of economic agents,
so that the economy can recover under new conditions,” said Levy to reporters
as he announced the measures.
According to the Minister the hike in taxes in fuels will mean an increase of
R$0.22 per liter in gasoline and R$0.15 per liter in diesel prices at distributors.
The increase will generate an extra R$12.2 billion in revenues this year alone.
The government also decided to increase PIS and Confins taxes (social
integration and social security taxes payed by companies) on imports from 9.25
percent to 11.75 percent. According to Levy the measure is to counteract the
courts’ decision to exempt imports from federal sales taxes.
In regards to the Imposto sobre Operações Financeiras – IOF (Tax over
Financial Operations) taxes for consumers trying to obtain credit will increase

who took office in January and has been charged with kick starting Brazil's lagging economy. which is already at the 6. and are set to bring inmore than half of the new revenue.5-percent upper limit of the government's target rate of 4.75 percent. told reporters in Brasília that the new measures would raise an additional $7.Brazil's new finance minister. equivalent to R$66. January 20. and a change in the way taxes are levied on cosmetics. particularly state-run oil company Petrobras. “We are taking actions to reach. announced Monday that the state will raise taxes on credit. are already high.5 cents for diesel as of Feb. The finance minister said. higher taxes on personal finance and imported products. fuel. with the benchmark SELIC rate currently set at 11. The measures include the reintroduction of a so-called Cide tax on fuel. that whether the hike was passed on to consumers was a decision for oil companies. imports and cosmetics in a bid to rebalance the government's books. Joaquim Levy. Increased fuel prices will add pressure on inflation. and the same will be true of interest rates which. Fuel prices are expected to rise by 8 cents a liter for gasoline and 5. Levy said that his economic team is trying to adjust public accounts with ‘the least possible sacrifice’ and that the measures will tend to lower the long-term interest rate curve. 2015 New finance minister says new measures are needed to claw back confidence in the Brazilian economy SAO PAULO .6 billion reais) in tax revenues this year. .8 billion (20.from 1. in the best manner possible. what is necessary to obtain the path to growth. Brazil maneuvers to raise nearly $8B in tax revenue Ben Tavener Tuesday.3 billion for the federal.5 percent to 3 percent per year. Levy.2 percent of GDP. Economists regularly surveyed by the central bank have predicted that inflation will end this year higher than 2014. “The world has changed.” said Levy.5 percent. however. 1. and Brazil is changing. state and municipal governments as well as state-owned companies.” For this year the government has established a primary surplus of 1.

" Growth slowed considerably. Together.After an initial burst of bond euphoria that followed Joaquim Levy’s appointment as finance minister was swept aside in a global selloff. Brazil’s real-denominated bonds have rallied since Dec. "As a whole. The government’s borrowing costs initially fell to a five-week low after President Dilma Rousseff named Levy to his post Nov. a series of policy moves is proving that bullish investors were right all along.2 percent in dollars this month. Copyright © 2015 Anadolu Agency (Bloomberg) -.” Brazil’s local-currency notes have returned 6. the most among developing nations after South African debt and more than three times the average gain in emerging markets. Levy is restoring investor confidence in the nation’s ability to avert a potential downgrade to junk. Levy also announced further public-spending cuts and tax increases. inflation grew and the country's budget deficit widened during President Dilma Rousseff's first term in office. said by e-mail. the president was praised by politicians and the markets for appointing Levy. only to surge again as the plunge in oil prices ignited a plummet in emerging markets. when the government unveiled cuts to pension and jobless benefits. In the ensuing weeks. take risks.2 percent to 2. However. 27.5 billion). show. who is renowned for his ability to prune back government outgoings. and for those in business to look to new things. By tackling Brazil’s biggest budget deficit in a decade. 29. The real slipped 0. people's disposition to invest. adding that Brazil would make changes "step by step" in order to get back to growth "with as little sacrifice as possible. but argued the new measures were needed to claw back confidence in the Brazilian economy." the minister said. data compiled by JPMorgan Chase & Co. “The catalyst for the outperformance has clearly been the new economic team. the measures would reduce the budget gap by almost 40 billion reais ($15. the president also warned against policies that would risk the country's near-record-low unemployment. .5802 per dollar today. “The market knows them and believes they have real power within the administration. Bond Rally The Finance Ministry’s press office declined to comment on the performance of the nation’s bonds and the impact of the recent policy announcements. to restore growth in the once-booming economy. which oversees $350 million of fixed-income emerging-market assets. After narrowly winning a second term. the effect [of the steps announced] is to boost confidence. a money manager at Acadian Asset Management.” Bryan Carter.Levy acknowledged these predicted economic pressures and said the central bank would monitor the economy.

” Paulo Vieira da Cunha. what’s needed to resume the path to growth. Moody’s Investors Service in September lowered its outlook on the nation’s Baa2 rating. said the measures aren’t big enough to stave off a rating cut. said in an interview at Bloomberg’s office in Sao Paulo. “Levy is basically turning around a car that was driving slowly backwards. managing director at Fitch Ratings in Brazil. The measures are “small steps in the right direction” but unlikely to prevent a downgrade of the sovereign rating.Brazil is “making changes step by step so it can reach. Still. He’s also targeting a budget surplus before interest payments of 1. he said. It’s a change in direction.8 percent of Brazil’s GDP.4 percent since Rousseff took office in 2011. credit and cosmetics.2 percent surplus would require a monumental effort. and with a stable outlook. to negative. “Achieving a 1. Fitch Ratings’s Rafael Guedes said the recent policy measures are the “right steps” to bolster the nation’s finances.” Paul McNamara. which has soared to 61.7 percent of gross domestic product from 53.2 percent of gross domestic product in 2015 after Brazil recorded a deficit of 0. The measures are “certainly positive and absolutely necessary for Brazil.” McNamara said by e-mail from London.8 billion of debt as a money manager at GAM UK Ltd.” Guedes. who helps oversee $5. imports. a former Brazilian central bank board member who is now the chief economist at hedge fund Ice Canyon. equal to about 0. ‘Monumental Effort’ “What Levy has done so far is impressive. ‘Right Direction’ “There’s still plenty to worry about. more than I anticipated and without any interference. in line with Moody’s. citing a slowdown in economic growth and deteriorating fiscal accounts.2 percent in the 12 months through November. Banco Santander Brasil SA estimates the recent moves will boost revenue by about 40 billion reais. with as little sacrifice as possible. Standard & Poor’s cut Brazil’s credit rating last March to one level above junk.. The former Banco Bradesco SA executive said in November he would seek to trim the country’s debt. the second-lowest investment grade.” Levy told reporters in Brasilia as he announced tax increases on fuel. said by telephone from New York.” . but Levy will deliver something. The company rates Brazil BBB.

Rousseff picked Mr. The government raised the . aims to raise R$20. will boost revenue by 694 million reais in 2015 and by 1.5% a year.1 billion reais annually. The government had cut the so-called Cide tax. Two taxes on gasoline and diesel fuel will rise starting Feb. to find ways to reduce the country’s budget deficit and prevent a downgrade to the country’s investment-grade credit rating. a University of Chicago-educated economist and a former head of the country’s treasury. A different tax on fuels will rise after 90 days and taxes on imported goods and cosmetics will increase starting in June.6 billion reais ($7. ET 1 COMMENTS BRASÍLIA—Brazilian Finance Minister Joaquim Levy announced a series of tax increases on Monday that will raise government revenue by 20. as will a tax on personal loans.2 billion reais in 2015 and 14. 19. Ms. Mr. he said.By JEFFREY T. The tax increases.6 billion Tue. Levy. to zero in 2012 to ease the burden of domestic-fuel subsidies on Petrobras . including targeted spending cuts and tighter control of pension and unemployment benefits.m. That tax will only affect wholesalers and won’t raise prices for the consumer. The measures. The fuel-tax increase had been expected by some analysts amid the recent drop in oil prices. according to the finance ministry. Mr. Levy said.4 billion reais this year and 8. along with other measures that President Dilma Rousseff ’s new economic team have announced in recent weeks. 01/20/2015 . including the Cide tax and two other taxes called PIS/Cofins that are used to fund Brazil’s social security and pension systems. which will rise to 11. which will rise in 90 days.75% to bring it line with the tax on domestically produced goods.9:32am Brazilian Finance Minister Joaquim Levy on Monday night announced a series of four tax hikes in an effort to reduce inflationary pressure from consumer demand and bolster government coffers. will together raise 12. raising an additional 7. are intended to restore confidence in the economy.2 billion reais a year starting in 2016.3 billion reais annually after that. have already helped reduce longer-term interest rates. The tax on cosmetics will raise revenue by 381 million reais this year and 654 million reais a year after 2015. Levy said at a news conference. Brazil hikes selected taxes.8 billion) in 2015. The rise in fuel taxes. The tax on personal loans will rise to 3% from 1. 1. The PIS/Cofins tax on imported goods. 2015 5:49 p. LEWIS Jan.

15 per liter of diesel. Levy said the measures should raise about R$20.75% from 9.IOF financial operations tax on short-term consumer credit (365 days or less) to 3. . The government re-instituted the dormant CIDE tax over fuels. the government announced that wholesalers buying cosmetics will now pay IPI value-added taxes at the same rate as industrial buyers of cosmetics.4%.0% from the previous 1.25%.22 per liter of gasoline and R$0.6 billion in additional tax revenue this year while dampening demand and helping corral inflation.5%. Brazilian inflation is currently running at 6. at a rate of R$0. At a news conference. The administration raised the PIS/Cofins welfare tax rate on imports to 11. Finally.