Brazil House Passes Watered-Down Bill to Increase Taxes

  • Lower house voted 205 to 176 in favor of the legislation
  • Bill must be approved in the Senate before it becomes law

Brazil’s lower house of Congress approved a watered-down bill to increase taxes on capital gains, reducing by half the additional revenue that the government expected to help it contain an expanding budget deficit.

Legislators voted 205 to 176 in favor of the bill Wednesday, which still must be approved in the Senate before it can become law. The proposal raises taxes on capital gains from the sale of real-estate and corporate assets, changing the rate as of 2017 from a flat 15 percent to a progressive scale with a higher top rate.

The government originally proposed a sliding scale that topped out at 30 percent, which supporters said would have boosted fiscal revenue by an estimated 1.8 billion reais ($460 million) a year. But lawmakers on Wednesday lowered the maximum rate to 22.5 percent. They rejected by 223 votes against 141 an amendment from the government coalition to restore the 30 percent maximum tax.

The watered-down version of the bill is expected to bring 900 million reais worth of revenue per year, said Jose Guimaraes, leader of the governing coalition in the house.

President Dilma Rousseff’s administration introduced the legislation as part of its strategy to narrow its budget deficit. The gap last year expanded to a record-high 613 billion reais. Deteriorating fiscal accounts prompted Standard & Poor’s and Fitch Ratings to strip the country of its investment grade.

The administration may have a tougher time this year winning approval of other measures designed to shore up fiscal accounts, such as a tax on banking transactions that would raise an estimated 32 billion reais a year. Legislators booed Rousseff when she discussed the proposal in an address before Congress this week, while many held signs expressing their opposition to the plan.

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