In an unprecedented fiscal maneuver, Brazilian Federal Government determined early in March to increase the tax burden on financial institutions, the chemical industry and on the purchase of vehicles by persons with disabilities.
The increase came through Provisional Measure1 (“MP”) and took the market by surprise. Among others, it raised the Social Contribution on Net Income (“CSLL”) rates for various financial institutions by 5%. With the increase, banks will be taxed by CSLL at a rate of 25% and other financial institutions2 will be taxed at a rate of 20%.
Government claims that these tax rates will go from July/2021 to January/2022.
Brazilian law3 forces government to determine a source of new revenue to offset any reduction in taxes. In this particular case, to offset the reduction in social contribution taxes4 on fuels and LPG5 .
The MP has already been sent to the House of Representatives and must be approved before being sent to Senate for analysis.
1 Provisional Measure No. 1,034/2021.
2 Such as foreign exchange brokers, credit companies, credit card administrators and securities distributors.
3 Supplementary Law No. 101/2000 (“Fiscal Responsibility Law”).
4 Social Integration Program Tax (“PIS”) and Social Security Contribution (“COFINS”).
5 Decree No. 10,638/2021, also enacted in early March.