Higher investor taxes in Brazil?

Whispers that the Minister of Finance, Guido Mantega, is planning to raise the IOF tax (on financial transactions) once the elections are done and dusted are gaining traction. Mantega has been using some pretty strong language of late, using the word "war" to describe currency interventions, and the high real remains a thorn in the side of industrialists, with the powerful Federation of Industries of São Paulo repeatedly talking about its nefarious effect. Mantega has stated that he won't raise the tax ahead of elections but after that "who knows. It's clear that all possibilities remain open," he has said.

The reasons for a move to blunt the super-real are plain. The US dollar is buying less than R$1.70, the lowest level since the onset on the crisis, there's a growing consensus that the base rate (the Selic) is going to keep heading up from nominal levels of 10.25%, although the Central Bank professes otherwise, and the Bovespa is touching 70,000 again after Petrobras' successful share offering.

Existing legislation allows the MoF to raise the tax to 25% from current levels of 2%. When the 2% tax was imposed, it caused an uproar not because of the tax itself but because the government conspicuously failed to flag the move. There have been few signs of repentance and talk about "hot money" is once more being used in Brasilia. Claudia Safatle, a columnist at newspaper Valor, talks about other possibilities. They include higher deposits for investors at the BM&FBovespa, for example, as well as more direct intervention in the currency markets. These measures have their limits.

Investors should be prepared for the possibility of a sudden and unannounced change to the IOF tax once the election has been decided either in the first round (October 3) or the second (31 October).

About admin

I've been researching and writing on Brazilian financial markets, industry and economy since 2006 for a wide range of specialist media, consultancies and investors. Before that I spent over 10 years in London and New York writing for and editing magazines and journals dedicated to finance, investment and economics in developing markets, mostly for the Euromoney Institutional Investor group and Thomson Financial. Areas of coverage Below are samples of areas that I cover and some of the common themes that I investigate. Capital markets BM&FBovespa markets *capital raising trends: via equities (IPOs and secondary issuance), debt and loans *the asset management industry: legislation and coverage of the key hedge, pension and investment funds * corporate governance: how the regulator is seeking to strengthen best practice and limitations * debt markets: the nascent corporate markets, attempts to boost liquidity and new insturments. * private equity market: why this market has been so successful, who’s involved. *electronic, high frequency trading and alternative trading platforms: what does the future hold? Banking *credit: the growth of consumer and business credit and competition between banks and models *Public versus private: the role and market share of public and private sector banks and the politicization of the industry * internationalization: which Brazilian banks are expanding overseas and where * investment banking: the growth of the domestic market and who’s winning which mandates *regional banks and development banks: what role they play in the industry and how they compete Mining *licensing: the complex process of obtaining environmental, water, land and operating licenses at a state and federal level. * capacity: the feasibility and sustainability of capacity increases * financing: how miners are raising finance in Brazil and abroad *competition: the interplay Vale, MMX and junior miners *logistics: rail, road and port connections Oil and gas: the fund raising issues related to the massive of pre-salt (link) Multilatinas: Who are they and how and where they are expanding Meatpacking: Are debt burdens sustainable, what are the different business models for areas such as branding and distrbution Agriculture: How are farms consolidating, what are environmental risks, how can foreign investors be involved. IT and software: Can Brazil take on India and build a viable long-term IT industry? For more information on clients and work, please see the media and consultancy sections.
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