Brazil could have new tax on financial transactions

. Sep 11, 2019
tax financial transactions

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Good morning! The government wants to tax all financial transactions in Brazil—a highly controversial idea. Landowners want to allow land grabbing. Suicide rates explode among Brazilian cops. And the dreadful Tuesday for Amazon’s competitors. (This newsletter is for platinum subscribers only. Become one now!)

Brazil could have new tax on financial transactions

The Economy Ministry’s tax reform

plan includes a 0.4-percent tax on cash withdrawals and bank transfers. Another 0.2-percent tax would be slapped on payments made by debit or credit card—to be paid by merchants and consumers alike. To compensate for the move, the government would reduce corporate payroll taxes, but House Speaker Rodrigo Maia has already told the government this proposal will be met with resistance by Congress.</p> <p><strong>Why it matters.</strong> Taxes on financial transactions are highly controversial among economists. Advocates point out that it would help taxing informal businesses, which are currently lying outside of revenue authorities&#8217; scope of action. However, it also incentivizes companies and firms to rely more on transactions made outside of the financial system. Another problem is its cumulative nature—if a product is manufactured in several steps, the tax will be paid multiple times.</p> <p><strong>Deterrent to business.</strong> Reforming the tax system is a Herculean task. However, the government&#8217;s approach, to have multiple ideas running alongside each other in Congress—instead of a single project that would make it clear for companies and investors what the new tax system would look like—might not be the best. Unpredictability regarding how much tax companies will pay has been a major deterrent to investments.</p> <script src="" type="text/javascript" charset="utf-8"></script> <hr class="wp-block-separator"/> <h2>Rural caucus wants to clear land for foreigners</h2> <p>Leaders of the rural caucus in Congress are pushing for a bill that divides the agricultural sector in Brazil: the regulation of land purchases by foreigners. The project has the support of Agriculture Minister Tereza Cristina, who claims it establishes clear limits to avoid land concentration in the hands of foreign groups. It remains to be seen how the government will address the bill. During the 2018 campaign, President Bolsonaro was adamantly against foreigners buying land in the country.</p> <p><strong>Why it matters. </strong>Since 2006, the world has seen a rapid increase in the volume and geographical spread of foreign acquisitions of land—and Brazil is among the top 5 countries in terms of surface involved in such transactions. According to a December 2017 survey from Grain, cited by the website <em>De Olho Nos Ruralistas</em> (literally translating as ‘Keeping an Eye on Landowners’), foreign groups have obtained roughly 3 million hectares of Brazilian land.</p> <p><strong>Money.</strong> Landowners are eyeing a market that could raise investments of up to BRL 50bn a year. Back in 2010, the Solicitor General&#8217;s office established limits on foreign acquisitions, reducing land speculation and making prices more stable. The agribusiness lobby wants to unclog that market.</p> <hr class="wp-block-separator"/> <h2>Murders are down in Brazil, but police are deadlier</h2> <p>For the first time in three years, the number of murders in Brazil is down—from 64,000 in 2017 to 57,341 cases last year, according to the latest report by the Brazilian Public Security Forum (<a href="">FBSP</a>). However, 10 percent of registered deaths in Brazil have been caused by police officers.</p> <p>Another intriguing piece of data is the spike in suicide rates among officers of Brazil&#8217;s civil and military police forces: rates jumped 42.5 percent between 2017 and 2018. As Euan Marshall writes on <strong>The Brazilian Report</strong>, the actual number of cases is considerably higher—as many states don&#8217;t share this data.</p> <p><strong>Why it matters.</strong> Violence has been, for decades, among Brazilians&#8217; biggest worries. And while the Jair Bolsonaro administration—alongside several governors—likes to connect lowering murder rates to a tougher stance on crime, the drop is more a natural statistical phenomenon suggesting the stabilization in murder rates. In 2017, the rate increased excessively, due to wars between drug gangs. &#8220;If it goes up too much one year, it is normal to drop in the following [year],&#8221; wrote FBSP.&nbsp;</p> <hr class="wp-block-separator"/> <h2>A very bad day for retailers</h2> <p>Tuesday was a horrible day for Brazilian retailers listed on the stock market. As Amazon launched its Prime service in Brazil, the giant&#8217;s main local competitors saw their shares plummet—losing a combined BRL 4.7bn in market share. However, it remains too soon to tell if yesterday&#8217;s move was anything more than just investor panic, as was the case when Amazon opened two distribution centers in Brazil.</p> <p><strong>Why it matters.</strong> Amazon is trying not to make the same mistake other giants made in Brazil. Walmart, for instance, spent billions of dollars trying to gain a foothold in Latin America’s biggest market—an experiment which ended in utter failure, due to the company&#8217;s inability to adapt to local preferences and consumer behavior. Even Amazon itself has a cautionary tale of its own, after failing to dethrone Alibaba in China.</p> <p><strong>Two sides.</strong> In Brazil, Amazon is slowly advancing—a strategy that could help it steadily steal market share from its competitors. But many investors believe that Amazon&#8217;s fortunes will not necessarily cause the ruin of local players—they are already well-established in the market, and could retain their strength outside of major urban centers—where Amazon is expected to focus.&nbsp;</p> <hr class="wp-block-separator"/> <h2>What else you need to know today</h2> <p><strong>U.S. 1. </strong>American President Donald Trump announced yesterday that John Bolton is no longer his national security adviser. Mr. Bolton was the main liaison between the White House and the Brazilian government. However, Brasília believes the move will have at least one positive effect: it should reduce pressure from the U.S. for an intervention in Venezuela.</p> <hr class="wp-block-separator"/> <div class="flourish-embed" data-src="visualisation/680189"></div><script src=""></script> <hr class="wp-block-separator"/> <p><strong>U.S. 2. </strong>The American Congress is back from recess, and the Brazilian Amazon was the subject of debate. As retaliation for the recent rise in deforestation rates, Democrat representative Peter DeFazio presented a bill that would halt U.S.-Brazil negotiations on a free trade deal, as well as several imports from Brazil—including soybeans, oil, beef, and timber. The Brazilian embassy in Washington said the bill would rather hinder more sectors of Brazilian agribusiness than comply with environmental legislation.</p> <p><strong>Strike.</strong> Employees of Correios, the federally-owned postal service, are on strike. The move is to protest the government&#8217;s plan to privatize the company, as well as promote raises below the rate of inflation. After many years of bad management, Correios has become a highly inefficient firm, and a true money drain for the federal administration.</p> <p><strong>Harvard.</strong> Former Congressman Jean Wyllys, who resigned and left Brazil earlier this year after receiving death threats online, will now teach classes on hate speech against sexual and ethnic minorities at Harvard&#8217;s Afro-Latin Research Institute.</p> <p><strong>Car Wash.</strong> Investigators launched an operation targeting a prominent São Paulo art gallery yesterday. Prosecutors will now start digging into how artwork is being used to launder money gained through corruption schemes. After the plea deal with former Finance Minister Antonio Palocci, Operation Car Wash has slowly shifted from focusing on former President Lula&#8217;s entourage to those who operated around his successor, Dilma Rousseff. Recent operations targeted her former finance minister, and a former Petrobras CEO whom she appointed.

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