Banks to Pay More Taxes as Brazil Tries to Increase Revenues

By Lise Alves, Senior Contributing Reporter

SÃO PAULO, BRAZIL – The Brazilian government announced this past week it would be increasing financial institutions’ taxes over net profits from fifteen percent to twenty percent, hoping to raise an additional R$3-4 billion per year to compensate the drop in revenues due to an ailing economy. The government’s latest forecast is that the GDP will register a retraction of 1.2 percent this year.

The increase in taxes is part of the government’s strategy to try to balance public accounts and try to meet the primary surplus target, which was revised downwards to 1.1 percent of the country’s GDP, approximately R$66.3 billion.

Analysts say that with balanced public accounts the government believes business confidence will increase and the possibility of a downgrade in the country’s risk classification is reduced.

According to Brazil’s Receita Federal (Federal Revenue Agency), revenues reached R$418.6 billion in the first four months of 2015, down by 1.19 percent from the same period last year after taking into account inflation.

The main reason for such decline, say officials is the stagnation of the economy, with industrial production falling by 5.13 percent for the first four months of the year and the decline by 4.36 percent in the sales of goods and services. These factors translate into lower revenues for the federal, state and local governments.

Yet while federal revenues declined, profits recorded by banks continue to increase. According to Brazil’s Central Bank financial institutions registered profits of R$41.3 billion last year, well above the R$37.2 billion registered in 2013 and the R$35.1 billion recorded in 2012.

The government announced Friday afternoon that the volume of cuts in the 2015 federal budget will total R$69.9 billion, but Planning Minister, Nelson Barbosa, reiterated that no major social programs will be cut and infrastructure investments for projects already underway will not be reduced. For the past few weeks, President Rousseff has met with key cabinet members to discuss specific budget cuts in the different sectors of the economy.