Brazil Raises Taxes on Financial Firms

Brazil Raises Taxes on Financial Firms

Brazil Raises Taxes on Financial Firms

The FINANCIAL -- Brazil's Senate approved a tax increase on financial firms' profits, part of a government effort to boost the country's revenue and cut its budget deficit amid weak economic growth, according to Nasdaq.

The Senate step follows the approval by the lower house earlier this month, and now must be signed by President Dilma Rousseff before it can be implemented.

The so called CSLL tax will rise to 20% from 15%, with the increase expected to take effect Oct. 1.

The increase, which will affect banks, brokerages and other financial institutions, is likely to generate extra revenue for the government worth 900 million Brazilian reais ($233 million) this year; BRL3 billion in the next year; and BRL4 billion in 2017, as the increase will be implemented gradually.

The 20% rate will be in place until the end of 2018, when it will return to 15%.

The increase in the tax for banks is likely to result in a 4% reduction in bank earnings, according to a recent report by Fitch Ratings.

"Fitch expects banks to adjust to the higher tax burden through loan re-pricings, resulting in a marginally higher cost of credit for borrowers, which could cause an uptick in delinquencies and further weaken loan growth," said the rating agency.

The measure came amid a drop in tax collection, as the country's economy is expected to contract more than 2.5% this year.

The government announced its intention to increase CSLL to 20% in May. In August Gleisi Hoffmann, a Senator from the ruling Workers' Party, proposed an increase to 23%, trying to provide more revenue for the government. However, with the government suffering from lack of support in congress, Ms. Hoffmann's proposal was rejected.