MercoPress. South Atlantic News Agency

Brazil preparing fiscal reform and considers new value added tax at federal level

Guedes also said the government’s economic reforms could help the economy to grow by 2.5% next year, privatizations this year will reach the US$ 20bn goal

Brazilian President Jair Bolsonaro telephoned Economy Minister Paulo Guedes from hospital this week to express his opposition to the creation of a new “CPMF” financial transactions tax, Guedes said on Friday.

In a wide-ranging interview with foreign journalists in Rio de Janeiro, however, Guedes again defended the idea, saying transaction taxes would allow for reductions in other levies such as income tax and value-added tax.

Guedes also said the government’s economic reforms could help the economy to grow by 2.5% next year, privatizations this year will reach the 80 billion reais (US$ 20bn) goal, and the process of asset sales will be accelerated next year.

The implementation of a new version of the unpopular CPMF tax, which was abolished in 2007, has in recent weeks emerged as the central and most controversial element of the government’s ambitious plans to reform the country’s complex tax system.

A key economy ministry official involved in drafting the proposals was fired this week over the issue. Guedes on Friday repeated his support for the idea, yet acknowledged the president does not back it at all.

“We were in the process of modeling a financial transaction tax, but the president was always against it and asked not to,” Guedes told foreign media in Rio de Janeiro, adding that Bolsonaro called from hospital in Sao Paulo, where he is recovering from a hernia operation.

Guedes confirmed that he and his team were working on a CPMF rate of 0.4% on transactions. But appearing irritated, he said the numbers should not have been made public, a reference to special federal revenue service secretary Marcos Cintra’s dismissal this week.

Guedes said tax reform drive will include a new “value-added tax” at the federal level, which states and municipalities can opt into, and said he and Bolsonaro were “100%” together on the need to maintain the government’s spending cap rule, which limits public spending increases to the rate of inflation.