When this decade began, Brazil found itself as one of the darlings of the investment world. Investors flocked south as it seemed that the nation had not only weathered the global financial crisis, but had been empowered by it. The Brazilian Federal Government reaped the financial benefits of foreign investment and began to spend heavily on social programs, such as Bolsa Família and Fome Zero. Even larger sums were spent by the National Bank for Economic Development (BNDES), lending public funds to businesses. Brazil benefited with a increase in the quality of life for the average citizen.
Currently, however, the nation barely has enough energy for the occasional flicker. President Dilma Rousseff has been plagued by massive protests and strikes. The Brazil currency, the Real, is at the weakest its been in over a decade, hovering just over a 3:1 exchange rate to the US Dollar. And not only has the Brazilian economy ceased its incredible growth from the start of the millennium, in two of the past four quarters, its GDP has outright contracted. As a result, the Federal Government is working to reconcile rampant inflation and a stagnant economy with the increased federal spending established during the last decade. Scrambling to find ancillary sources of income in order to sustain itself, the Brazilian Federal Government has recently increased a variety of taxes. In addition, as a result of calls for more protectionist policies from the domestic National Confederation of Manufacturers (CNI), the Federal Government has taken aim at foreign companies who export their goods into Brazil and hold a large share of certain markets. Looking to resolve two problems at once, the Brazilian government reviewed their stance on import taxes in Provisional Measure n° 668, enacted in 30 January 2015 ("Provisional Measure 668/2015").
When foreign goods are imported into Brazil, the importer must incorporate a number of separate taxes into the importation price, such as the IPI (Excise Tax), II (Import Duty), ICMS (State VAT), and the Social Contributions on Gross Receipts (PIS and COFINS), the later ones destined to fund the Brazilian Social Security Service.
The Provisional Measure 668/2015 deals exclusively with regards to the PIS and COFINS due on the importation of goods and services.
The charging of PIS and COFINS on the importation of goods and services exists since April 2004, with the approval of the Bill n. 10.865/04 that set out the general rates of PIS and COFINS applicable on the importation of goods and services. In this regard, with the need of the Federal Government to decrease its fiscal deficit, the Provisional Measure n° 668/15 was enacted to amend the provisions of the Bill n. 10.865/04 and caused the increase of the rates of the PIS due COFINS levied on the importation of goods and services. Specially, the Provisional Measure n. 665/15 targeted the following goods: pharmaceuticals, toiletries, machinery, vehicles, tires and inner tubes, auto parts, and paper used for publishing books and periodicals.
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With this amendment to the Bill n. 10.865/04, the Brazilian Revenue Service hopes to increase yearly revenue by as much as USD3 billion. In order to provide a clear example on the increase of the PIS and COFINS rates caused by the Provisional Measure n. 668/15, below is a summary chart with the rates before and after the enactment of such measure, which are valid to imports made as of 1 June 2015:
Exactly how Provisional Measure n. 668/15 will ultimately affect the Brazilian economy and tax revenue remains to be seen. Proponents have advocated that the tariff will stimulate the domestic economy by providing incentive to purchase Brazilian made goods. It may yet help in chipping away at the Brazilian deficit, or it may further suck energy from the manufacturing industry, forcing the Rousseff's administration to take even more drastic actions. The potential for either outcome is up for debate, as has been occurring within the Brazil government since the introduction of the protectionist measure.
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