12 June 2015, London - Brazil ranks low on all measures of ease of doing business. With more than 50 taxes, fiscal complexity is one of the biggest challenges for corporate treasurers operating in the country.
Talking to investors and EuroFinance in London in mid-May, Joaquim Levy, Brazil’s Finance Minister said: “We are committed to simplifying taxes.”
Although sceptical about World Bank figures showing that it takes companies 2600 hours a year to prepare and pay taxes in Brazil, Levy said the government will work to merge Brazil’s state and federal value added tax regimes as well as Pis Cofins (Social Integration Program), which should help credit generation. The government is also working with local states to enable the taxation of goods and services at a consumer level, rather than where they are produced, Levy said.
This has so far been resisted by the states that benefit from the current regime but Levy said that he has been talking with governors and senators “to see how we can help them steer this reform” and hopes to send a bill to Congress in the near future.
Levy said that one of Brazil’s strengths is the size of the market combined with the right demographics. “I have a strong belief that if you have your house in order, if you keep inflation under control and you have the right fiscal framework in place, there are few places in the world where you can get better rewards than from investing in Brazil,” he said.
When asked where growth will come from, he said: “From the strength of our domestic market, from our ability to compete globally. We have to be open to more competition and foster trade,” he added: “It will take a couple of quarters before the economy is back on track but investors see the potential in Brazil.”
Levy said the government has a united front in addressing fiscal imbalances and bolstering the economy. “Investors’ three main perceived risks when I took office were: a) the macro (the possibility of Brazil's credit rating being downgraded and the fiscal situation), b) the consequences of the Petrobras scandal and c) energy supply shortages. These fears have now receded. Investors recognise that the government has a real strategy.”
Levy also highlighted opportunities for investment in infrastructure projects and funding alternatives both from BNDS, (Brazil’s development bank) and the capital markets.
If the current administration manages to balance the accounts and enact the structural reforms needed to free markets, the cost of long term capital can decrease, a strong internal economy can develop and Brazil will be able to compete globally, analysts say.
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