To Combat Deficit, Temer Government Reduces Tax Benefits for Companies

03/29/2017 - 14h21

In order to combat deficits in the budget, President Michel Temer decided to put an end to tax benefits conceded to different economic sectors and to set aside R$ 32 billion (US$ 10,2 billion) from the Federal Budget this year.

A reevaluation of budgetary forecasts based upon the slow recovery of the economy is resulting in lower growth in governmental receipts than had been projected, raising the deficit projection by R$58 billion (US$ 18,5 billion). The goal set in the Budget for this year is to reduce the deficit to R$139 billion (US$ 44,3 billion), equivalent to 2% of GDP (Gross Domestic Product).

To prevent an even larger deficit, the government is looking for additional tax receipts on the order of R$26 billion (US$ 8,3 billion). An end to the exemption from payroll taxes from different sectors is projected to bring in as much as R$ 8 billion (US$ 2,5 billion).

In addition to this, an increase in the PIS/Cofins tax rate on credit operations for cooperatives should generate an additional R$ 1 billion (US$ 320 million).

In the last few weeks, the government's economic team had ended up projecting a smaller set-aside in the Budget, of R$20 billion (US$ 6,4 billion), obligating the government to seek an larger offsetting increase in taxes to make up the difference.

Temer and his Finance Minister, Henrique Meirelles, had initially resisted the idea, under pressure from business leaders and concerned that the measure would reduce the President's popularity.

Translated by LLOYD HARDER

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