Brazil to Boost Beer Taxes to Address Fiscal Accounts

Brazil’s government will increase taxes on cold beverages such as beer and soda beginning June 1 as part of efforts to increase revenue after suffering its first sovereign credit downgrade in a decade last month.

The measures, which will be announced today, are expected to raise 1.5 billion reais ($671 million) by year end and will only have a minimal impact on inflation, Carlos Alberto Barreto, the head of the federal tax told reporters in Brasilia yesterday.

Standard & Poor’s on March 24 downgraded Brazil’s credit rating one step to BBB-, its lowest investment-grade rating, with a stable outlook. The move ended a decade-long stretch of upgrades for the world’s second-largest emerging market. S&P said sluggish economic growth and an expansionary fiscal policy are fueling an increase in the country’s debt levels.

“Naturally, the measure reinforces budgets at the federal, state and municipality levels,” said Barreto.

Barreto said the general impact on inflation is expected to be “very low” as the average price increase to consumers on beverages would be 2.25 percent. On inflation overall, the impact could be 0.02 percent on the IPC-M, which is part of the IGP-M index. He also said that the government was considering tax increases on cosmetics and imports.

Since May 2012, the beverage industry has raised beer prices 23 percent and soda prices 19 percent, according to Barreto, and the tax increases are meant to reflect the current level of prices charged by companies.

The government this year has sought to address its fiscal accounts after posting in 2013 the biggest year-end budget deficit since the series started in 2002.

Finance Minister Guido Mantega on Feb. 21 said Brazil would raise taxes in 2014 as it cuts spending to meet fiscal targets. A day earlier, Mantega said the government would cut 44 billion reais in spending from the 2014 budget as it tries to post a primary surplus equal to 1.9 percent of gross domestic product.

The budget gap in 2013 reached 157.6 billion reais after widening in December to 13.6 billion reais from 200 million reais a month earlier, the central bank said Jan. 31.