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
SO PAULO, BRAZIL The Brazilian governments new economic team
announced the first measures which they hope will reduce the countrys 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.

Brazils 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 Operaes Financeiras IOF (Tax over
Financial Operations) taxes for consumers trying to obtain credit will increase

from 1.5 percent to 3 percent per year. 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.
The world has changed, and Brazil is changing, said Levy. We are taking
actions to reach, in the best manner possible, what is necessary to obtain the
path to growth.
For this year the government has established a primary surplus of 1.2 percent of
GDP, equivalent to R$66.3 billion for the federal, state and municipal
governments as well as state-owned companies.

Brazil maneuvers to raise nearly $8B in tax

revenue
Ben Tavener Tuesday, January 20, 2015

New finance minister says new measures are needed to claw back confidence in the Brazilian economy
SAO PAULO - Brazil's new finance minister, Joaquim Levy, announced Monday that the state will raise taxes on credit,
fuel, imports and cosmetics in a bid to rebalance the government's books.
Levy, who took office in January and has been charged with kick starting Brazil's lagging economy, told reporters in
Braslia that the new measures would raise an additional $7.8 billion (20.6 billion reais) in tax revenues this year.
The measures include the reintroduction of a so-called Cide tax on fuel, higher taxes on personal finance and imported
products, and a change in the way taxes are levied on cosmetics.
Fuel prices are expected to rise by 8 cents a liter for gasoline and 5.5 cents for diesel as of Feb. 1, and are set to bring
inmore than half of the new revenue. The finance minister said, however, that whether the hike was passed on to
consumers was a decision for oil companies, particularly state-run oil company Petrobras.
Increased fuel prices will add pressure on inflation, which is already at the 6.5-percent upper limit of the government's
target rate of 4.5 percent. Economists regularly surveyed by the central bank have predicted that inflation will end this
year higher than 2014, and the same will be true of interest rates which, with the benchmark SELIC rate currently
set at 11.75 percent, are already high.

Levy acknowledged these predicted economic pressures and said the central bank would monitor the economy, but
argued the new measures were needed to claw back confidence in the Brazilian economy.
"As a whole, the effect [of the steps announced] is to boost confidence, people's disposition to invest, take risks, and for
those in business to look to new things," the minister said, adding that Brazil would make changes "step by step" in
order to get back to growth "with as little sacrifice as possible."
Growth slowed considerably, inflation grew and the country's budget deficit widened during President Dilma Rousseff's
first term in office.
After narrowly winning a second term, the president was praised by politicians and the markets for appointing Levy, who
is renowned for his ability to prune back government outgoings, to restore growth in the once-booming economy.
However, the president also warned against policies that would risk the country's near-record-low unemployment.
Copyright 2015 Anadolu Agency

(Bloomberg) -- After an initial burst of bond euphoria that followed Joaquim Levys
appointment as finance minister was swept aside in a global selloff, a series of policy
moves is proving that bullish investors were right all along.
Brazils real-denominated bonds have rallied since Dec. 29, when the government
unveiled cuts to pension and jobless benefits. In the ensuing weeks, Levy also
announced further public-spending cuts and tax increases. Together, the measures
would reduce the budget gap by almost 40 billion reais ($15.5 billion).
By tackling Brazils biggest budget deficit in a decade, Levy is restoring investor
confidence in the nations ability to avert a potential downgrade to junk. The
governments borrowing costs initially fell to a five-week low after President Dilma
Rousseff named Levy to his post Nov. 27, only to surge again as the plunge in oil prices
ignited a plummet in emerging markets.
The catalyst for the outperformance has clearly been the new economic team, Bryan
Carter, a money manager at Acadian Asset Management, which oversees $350 million
of fixed-income emerging-market assets, said by e-mail. The market knows them and
believes they have real power within the administration.
Brazils local-currency notes have returned 6.2 percent in dollars this month, the most
among developing nations after South African debt and more than three times the
average gain in emerging markets, data compiled by JPMorgan Chase & Co. show. The
real slipped 0.2 percent to 2.5802 per dollar today.

Bond Rally
The Finance Ministrys press office declined to comment on the performance of the
nations bonds and the impact of the recent policy announcements.

Brazil is making changes step by step so it can reach, with as little sacrifice as possible,
whats needed to resume the path to growth, Levy told reporters in Brasilia as he
announced tax increases on fuel, imports, credit and cosmetics.
The former Banco Bradesco SA executive said in November he would seek to trim the
countrys debt, which has soared to 61.7 percent of gross domestic product from 53.4
percent since Rousseff took office in 2011. Hes also targeting a budget surplus before
interest payments of 1.2 percent of gross domestic product in 2015 after Brazil recorded
a deficit of 0.2 percent in the 12 months through November.

Monumental Effort
What Levy has done so far is impressive, more than I anticipated and without any
interference, Paulo Vieira da Cunha, a former Brazilian central bank board member
who is now the chief economist at hedge fund Ice Canyon, said by telephone from New
York. Achieving a 1.2 percent surplus would require a monumental effort, but Levy will
deliver something. Its a change in direction.
Paul McNamara, who helps oversee $5.8 billion of debt as a money manager at GAM
UK Ltd., said the measures arent big enough to stave off a rating cut.
Banco Santander Brasil SA estimates the recent moves will boost revenue by about 40
billion reais, equal to about 0.8 percent of Brazils GDP.
Standard & Poors cut Brazils credit rating last March to one level above junk, citing a
slowdown in economic growth and deteriorating fiscal accounts. Moodys Investors
Service in September lowered its outlook on the nations Baa2 rating, the second-lowest
investment grade, to negative.

Right Direction
Theres still plenty to worry about, McNamara said by e-mail from London. The
measures are small steps in the right direction but unlikely to prevent a downgrade of
the sovereign rating, he said.
Still, Fitch Ratingss Rafael Guedes said the recent policy measures are the right steps
to bolster the nations finances. The company rates Brazil BBB, in line with Moodys,
and with a stable outlook.
Levy is basically turning around a car that was driving slowly backwards, Guedes,
managing director at Fitch Ratings in Brazil, said in an interview at Bloombergs office
in Sao Paulo. The measures are certainly positive and absolutely necessary for Brazil.

By
JEFFREY T. LEWIS
Jan. 19, 2015 5:49 p.m. ET

1 COMMENTS

BRASLIABrazilian Finance Minister Joaquim Levy announced a series of tax increases on Monday
that will raise government revenue by 20.6 billion reais ($7.8 billion) in 2015.
Two taxes on gasoline and diesel fuel will rise starting Feb. 1, as will a tax on personal loans. A different
tax on fuels will rise after 90 days and taxes on imported goods and cosmetics will increase starting in
June.
The tax increases, along with other measures that President Dilma Rousseff s new economic team have
announced in recent weeks, are intended to restore confidence in the economy, Mr. Levy said at a news
conference. The measures, including targeted spending cuts and tighter control of pension and
unemployment benefits, have already helped reduce longer-term interest rates, he said.
Ms. Rousseff picked Mr. Levy, a University of Chicago-educated economist and a former head of the
countrys treasury, to find ways to reduce the countrys budget deficit and prevent a downgrade to the
countrys investment-grade credit rating.
The fuel-tax increase had been expected by some analysts amid the recent drop in oil prices. The
government had cut the so-called Cide tax, which will rise in 90 days, to zero in 2012 to ease the burden
of domestic-fuel subsidies on Petrobras .
The rise in fuel taxes, including the Cide tax and two other taxes called PIS/Cofins that are used to fund
Brazils social security and pension systems, will together raise 12.2 billion reais in 2015 and 14.1 billion
reais annually, according to the finance ministry.
The tax on personal loans will rise to 3% from 1.5% a year, raising an additional 7.4 billion reais this year
and 8.3 billion reais annually after that.
The PIS/Cofins tax on imported goods, which will rise to 11.75% to bring it line with the tax on
domestically produced goods, will boost revenue by 694 million reais in 2015 and by 1.2 billion reais a
year starting in 2016.
The tax on cosmetics will raise revenue by 381 million reais this year and 654 million reais a year after
2015. That tax will only affect wholesalers and wont raise prices for the consumer, Mr. Levy said.

Brazil hikes selected taxes, aims to raise R$20.6

billion
Tue, 01/20/2015 - 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. The government raised the

IOF financial operations tax on short-term consumer credit (365 days or

less) to 3.0% from the previous 1.5%. The administration raised the
PIS/Cofins welfare tax rate on imports to 11.75% from 9.25%. The
government re-instituted the dormant CIDE tax over fuels, at a rate of
R$0.22 per liter of gasoline and R$0.15 per liter of diesel. Finally, the
government announced that wholesalers buying cosmetics will now pay IPI
value-added taxes at the same rate as industrial buyers of cosmetics. At a
news conference, Levy said the measures should raise about R$20.6 billion
in additional tax revenue this year while dampening demand and helping
corral inflation. Brazilian inflation is currently running at 6.4%.