💸 Tax tantrums

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PUBLIC ACCOUNTS

Business leaders push back against surprise tax hike

In a rare show of unity, Brazil’s leading business lobbies — spanning industries from agriculture to finance — are urging Congress to overturn a surprise tax hike announced by the government last week. At issue is an increase to the IOF, a transaction tax levied on credit, foreign exchange and insurance operations (see more details here). The move has triggered immediate and strong backlash from the markets.

The Lula administration says the tax adjustments are necessary to erase discrepancies in how the tax is levied — but many see it simply as a way to boost revenue. Critics also argue the plan is short-sighted and could undermine private investment, deepen uncertainty and slow growth at a time when businesses are already grappling with Brazil’s prohibitively high interest rates — the Selic benchmark rate stands at 14.75%.

“This is a cumulative tax that punishes companies for borrowing,” Luis Otávio Leal, chief economist at G5 Partners, told the press this week. “The bigger players might be able to finance through capital markets. But small and mid-sized firms, which rely on bank credit, will take the hit.”

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