Brazil gov’t to press Senate after election on dividend tax to fund welfare program -source

By Marcela Ayres and Bernardo Caram

BRASILIA (Reuters) -Brazil’s government wants to conclude voting on tax reform later this year to boost welfare aid from 2023 on, if President Jair Bolsonaro wins re-election in October, an official source said.

According to the source with direct knowledge of the matter, who spoke anonymously because the plans are not public, the government hopes a new tax on corporate dividends would provide revenue for welfare aid promised by Bolsonaro, who is trailing leftist Luiz Inacio Lula da Silva in the polls.

The Lower House approved a tax reform in September 2021, introducing a 15% tax on corporate dividends, which are currently exempt, but the Senate has yet to vote on the bill.

Earlier this month, Congress passed a massive spending package that raised the cash transfer program for low-income families, called Auxilio Brasil, from 400 to 600 reais ($116.02) for this year only. The expenditure was allowed to bypass the constitutional spending cap due to the inflationary effects of the war in Ukraine.

The Treasury has already stated that the permanent expansion of the program would require 50 to 60 billion reais per year. According to the source, the government is still looking into how this would be accommodated within the spending rule next year.

Higher growth

According to the source, the government sees Brazil growing by more than 2% this year, with expansion likely to reach 2.5%.

The projection comes after the Economy Ministry recently improved its forecast to 2% from 1.5%, on the back of stronger economic indicators, an improvement in the job market and an increase in private investments.

The source also stated that the government was preparing a bill to end double taxation on U.S. companies, as preparation for Brazil joining the Organization for Economic Co-operation and Development (OECD).

The bill could be sent to Congress next week, the source added.

Another ongoing initiative is a decree, which may be signed this Friday, to standardize a previously announced 35% tax cut on industrial products (IPI) after a Supreme Court ruling created uncertainty due to broad exemptions.

The decree, earlier reported by Reuters, will clarify which products are covered by the tax reduction. The IPI tax is levied on companies manufacturing and importing products, such as refrigerators, cars, air conditioners and televisions.

($1 = 5.1714 reais)

(Reporting by Marcela Ayres and Bernardo Caram; Editing by David Gregorio)