Representatives of the Brazilian business sector have released a joint manifesto calling on Congress to reverse a government decree increasing Tax on Financial Transactions.
Signatories to the document claim that the new tax burden will be R$ 19.6 billion (3.82 billion dollars) by 2025.
The manifesto was signed by the CNC (National Confederation of Commerce), CNI, CNA and CNseg.
Private sector has been increasingly critical of the decree that increases IOF for credit, foreign currency, and insurance transactions.
Signatories to the manifesto, released Monday night, claim that the measure would increase credit costs for businesses. It will also exacerbate current economic distortions and financial market issues.
These groups point out that private pension schemes such as VGBL are affected by the taxation of loans at a rate exceeding 110% per year.
Economic Impact and Market Distortions
Document states that the new slab would have a direct impact on the importation of capital and input goods. This will discourage investment, and delay the modernisation of national industrial parks.
They also stress that the IOF has a regulatory function and not a fiscal one, denouncing the increase in tax as a measure to generate revenue.
The Brazilian business community believes that the increased tax burden will affect the climate of Brazil’s economy, as the country already has one of the highest taxation systems in the world.
The manifesto says: “It’s important to make sure that revenue increases come with growth and not more taxes.”
The government has reversed certain elements of the decree, including taxes on funds sent abroad, remittances to invest, but it still maintains high taxes for credit purchases, foreign card purchases, and exchange transactions.
The Congressional backlash is gaining momentum
The pressure placed on House Speaker Hugo Motta by the mobilization of the business community is increasing. Motta has been publicly critical of the position taken by the government.
Motta emphasized fiscal dogmatism, after Fernando Haddad, the Finance Minister said that Congress was slow to implement fiscal reforms.
Motta stated that those who are spending more than their income are not the victims but rather perpetrators. This is a sign of a growing rift between Congress and Executive Branch on issues related to economic policy.
In a way, the manifesto is a direct counter to a government policy that has been very explicit. It argues against tax increases because they undermine three of the pillars for a healthy economy.
These groups demand a “stronger”, institutional framework in order to regain fiscal balance and solve the public finances woes without increasing taxes.
On the Horizon: Legislative Action
Politicians are trying to stop the order through a legitimate parliament.
Seven legislative decrees have been proposed by parties such as PL and Solidariedade to combat the law.
Motta will meet party leaders Thursday, May 29 to discuss next steps.
The government is also reportedly considering using an alleged blockage on amendments to legislation as leverage during negotiations with Congress.
The IOF tax increase has become a focal point in the larger battle between Brazil’s legislative and executive branches over fiscal responsibility. It is also affecting the economic climate and the investment opportunities of the country.
As new information becomes available, this post Brazil Business Groups urge Congress to reverse IOF Tax Hike may be updated.
This site is for entertainment only. Click here to read more
