President Jair Bolsonaro (PL) signed this Tuesday (15) a decree to zero the IOF (Tax on Financial Operations) rates on foreign exchange operations gradually until 2029.
A part of the exemption, on loans made abroad, can be applied immediately. The reduction of the rates charged on credit card transactions abroad begins in 2023.
The measure is in the direction of greater liberalization of the flow of foreign capital and invisible transactions, instruments that integrate the practices of the OECD (Organization for Economic Cooperation and Development) in the economic area.
The government’s commitment to cutting the IOF was one of the conditions to unlock Brazil’s entry into the organization. In January, the OECD formalized the start of negotiations for the country’s accession.
According to Pedro Calhman, secretary of Economic Policy at the Ministry of Economy, the entity’s guidelines do not take away Brazil’s right to raise the IOF again, if necessary.
“Brazil continues to have the right to use this instrument for financial stability purposes. If there is a situation in which Brazil sees the need to insert IOF on foreign exchange operations due to financial need, it has the option to do so within the rules of the OECD”, stated.
Although the intention to eliminate the IOF tax had already been announced by the government, the decree had not yet been formalized – which took place this Tuesday (15th) in a ceremony at the Planalto Palace.
“This is the seventh permanent tax reduction of your government. No president has cut as many taxes permanently as this government. What about the fiscal side? Simple: Brazil carried out in 2021 one of the biggest fiscal adjustments in the modern history of the world”, said the head of the Special Advisory for Strategic Economic Affairs, Adolfo Sachsida.
The reduction of rates will be done gradually, diluting the fiscal impact of the measure. Today, short-term loans obtained abroad are taxed at 6%, a charge that will be zeroed immediately.
On credit card purchases abroad, the rate today is 6.38%. From 2023, it will drop one percentage point a year until 2027, when it will be 1.38%. The following year, it will be completely zero.
The IOF tax on the acquisition of foreign currency in cash, currently at 1.10%, will be completely zeroed in 2028. The rate on other foreign exchange transactions, currently at 0.38%, will be reduced in 2029, at the end of the transition.
The measure should result in a waiver of R$500 million in 2023, R$930 million in 2024 and R$1.4 billion in 2025. The amount continues to grow to R$1.9 billion in 2026, R$2.4 billion billion in 2027 and BRL 4.3 billion in 2028. At the end of the transition, when the entire rate cut is implemented, the fiscal impact is estimated at BRL 7.7 billion per year.
According to Sachsida, the escalation is due to the high fiscal cost of the measure. “It is not possible for us to reset all IOF exchange rates at once. It is a very high cost to give up,” she said.
“Instead of zeroing all the IOF exchange rates to zero today, at the fiscal cost of R$7.7 billion, we made a step, gradually reducing, preserving the fiscal balance, giving all the predictability to the investment and migrating to the norms of the OECD.”
Bolsonaro also signed two MPs (provisional measures) aimed at rural credit and boosting the insurance market.
Second placed in the polls for the election to the presidency this year, Bolsonaro has intensified the agenda with sectors considered essential for the maintenance of his government, such as agribusiness.
The Ministry of Economy says that the measures will reduce the cost of financing agribusiness. The measure makes the conditions for issuing the CPR (Rural Producer Certificate) more flexible, through which the producer can raise funds in the market, allowing, for example, the use of electronic signatures.
The text also temporarily extends (until December 31, 2023) the deadline for registering or depositing CPRs, from 10 to 30 days. CPR is a bond that represents a promise of future delivery of an agricultural product. According to Economics, the instrument facilitates rural production and marketing.
In the insurance area, Paulo Guedes’ portfolio proposes a new legal framework for securitization companies, which buy debts in the portfolios of other institutions before their debtors settle the liabilities, to help provide liquidity to the market.
In addition to unifying the legislation, the Economy wants to standardize the rules for the securitization of credit rights (credits that a company has to receive and that work as debts converted into bonds) and for the issuance of receivables certificates (securities that generate the right to credit ).
The MP also creates the Letters of Insurance Risks, bonds linked to a portfolio of insurance and reinsurance policies, including supplementary pension plans.
Although not announced on Tuesday, the government also plans a reallocation of BRL 868 million to complement the National Treasury’s resources to subsidize financing under the Safra Plan in 2022.
as showed the sheetthe extra bill stems from the significant increase in interest rates, which increased the expense of the so-called equalization – the government pays the difference between the rate charged to producers, which is lower, and the effective cost of the financial institutions that lend the money.
The government has already relocated BRL 915 million through ordinances, but the money is still not enough. Another R$818 million will be needed for the 2023 Budget.
Bolsonaro should also open an extraordinary credit of R$ 1.2 billion to serve producers in the southern region of the country affected by the drought.
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