Brazil Said to Mull Tax Increase on Some Local Bonds By Year-End

  • Notes are backed by real-estate and agriculture portfolios
  • Investors are exempt from 15 percent income tax on the notes

Brazil’s Finance Ministry may announce by year-end a tax increase on local notes issued by financial institutions that are backed by real-estate and agriculture loan portfolios, according to two members of the nation’s economic team.

The ministry would eliminate an exemption that allows individual investors to skip paying a 15 percent income tax on the instruments, known as LCIs and LCAs, said the people, who asked not to be identified discussing the plan publicly. The ministry wants to bring taxation on the real-denominated notes, which are popular among retail investors, in line with other fixed-income instruments, said the people.

"I believe we can still make progress this year in the taxation of financial instruments that in recent years have been a little disorganized and unbalanced,” Finance Minister Joaquim Levy told reporters in Brasilia earlier Wednesday, without mentioning specific securities by name. "Such instruments were used by private banking segments in order to take advantage of gains without income tax."

The Finance Ministry’s press office didn’t immediately reply to a request for comment.

About 185 billion reais ($49.6 billion) in outstanding LCI bonds were held in the Brazilian market as of the end of October, according to data from securities depositary Cetip SA. The outstanding volume of LCA bonds totaled 48.6 billion reais.

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