Economy Ministry and Central Bank don’t see eye to eye on new tax

CPMF. These four letters almost sound like a dirty word to Brazilians. The acronym describes a now-defunct tax on financial transactions, which could be making an unwelcome comeback. Conceived as a temporary fix to the federal budget, the CPMF existed for 11 years and became a trademark symbol of the scorching tax burden in Brazil. But even if people loathe this tax, Economy Minister Paulo Guedes is keen on bringing it back to life, in order to help the administration curb the deficit. 

But the push for a new version of the CPMF (to be called the Financial Transaction Tax, or ITF) is not only set to drive Brazilians angry, it is also a direct clash with the Central Bank’s agenda to modernize the country’s financial system.

The federal administration reportedly wants to slap a 0.4-percent tax on cash withdrawals and transfers—combined with a 0.2-percent tax on debit and credit card transactions (to be paid by consumers and merchants alike). As intended, the ITF rate would rise with time—and the government is making no illusions that it would be a temporary fix. The new tax would come to stay.

Why the new tax?

To compensate for the new levy, the Economy Ministry intends to reduce duties on corporate payroll tax from 20 to 13 percent—and even abolish social security taxes, depending on the rates Congress chooses. In an interview with financial newspaper Valor, Mr. Guedes also talked about reducing the cost of hiring new employees, a move he hopes will reduce unemployment rates. 

“The ITF is ugly, annoying, but it has generated good tax revenue and that’s why it lasted for 11 years. Depending on the tax brackets, it could generate roughly BRL 150 billion yearly,” said Mr. Guedes.