Brazil Boosts Tax on Overseas Credit-Card Purchases

Brazil’s government almost tripled a tax consumers must pay on credit-card purchases abroad to 6.38 percent.

The increase in the so-called IOF tax on financial transactions from 2.38 percent is effective today and will affect transactions liquidated after 30 days, according to a decree published in the Official Gazette. The increase also affects Internet commerce, according to Sandro de Vargas Serpa, undersecretary for taxation at Brazil’s tax agency.

“The government is concerned with Brazilians’ debt burden and with tax collection,” said Elson Teles, chief economist at Maxima Asset Management in Rio de Janeiro. “The tax increase would allow a better management of the current account gap and also help offset lower tax collection after higher income exemptions.”

Gross spending by Brazilians abroad, including online retail purchases, jumped 38.5 percent in the first two months of the year to $3.1 billion, the central bank said last week. The increase helped widen the country’s current account gap to a record $4.53 billion for the period, the bank said.

Stronger Currency
Brazil’s current account deficit, which is being fueled by a 39 percent appreciation of the real since the start of 2009, may widen to a record $60 billion in 2011, from $47.5 billion in 2010, the central bank said last week.

President Dilma Rousseff also published a measure today increasing the income-tax exemption by 4.5 percent annually through 2014.

The tax agency, in a statement, said Sandro de Vargas Serpa, sub-secretary of taxation, did not confirm the government is considering raising taxes on foreign borrowing by Brazilian companies. Earlier, in a press conference in Brasilia, Serpa said the government “does not comment on measures under study” when asked whether such a move was under consideration.

The measures are designed to curb the real, which has surged 39 percent since the start of 2009.

Redecard SA, Brazil’s second-biggest card-payment processor, declined 0.2 percent to 23.76 reais in Sao Paulo trading today. Shares had fallen as much as 1.1 percent, the biggest intra-day decline in a week. Cielo SA, the country’s biggest card-payment processor by market value, declined 2.4 percent to 13.66 reais.
Positive Trend

Investors are pricing in the impact of higher taxes on credit-card purchases today, while focusing on a positive trend in the medium term, Daniel Malheiros, an analyst at Spinelli Corretora SA brokerage, said in a telephone interview.

“The impact is limited,” said Malheiros. “Credit-card processors in Brazil will continue growing more than 10 percent annually over the next four years.”

Credit cards are being used by 43 percent of Brazil’s population, up from 31 percent in 2007, the central bank said today in a report posted on its website. Brazilians holding a bank checking account rose to 51 percent of the population last year, from 39 percent in 2007, the report showed.

Economists covering the Brazilian economy raised their inflation forecasts while reducing their estimate for interest- rate increases after the central bank signaled it may adopt measures to curb credit growth other than raising borrowing costs.

Economists lifted their 2011 CPI forecast to 6 percent, from 5.88 percent a week earlier, according to a March 25 central bank survey of about 100 economists published today. Economists cut their forecast for the benchmark overnight interest rate to 12.25 percent at year-end from 12.5 percent.

Policy makers in Latin America’s biggest economy may adopt new measures to curb consumer credit growth in a bid to cool heated domestic demand, central bank President Alexandre Tombini told lawmakers March 22. Inflation forecasts may “worsen” in the short term as analysts absorb the residual impact from a rally in commodity prices, Tombini said March 25.