Brazil eyes taxing big tech and global minimum tax to meet fiscal goals

Brazil's fiscal strategy: Brazil’s Finance Ministry is set to propose new tax measures to Congress later this year aimed at boosting revenue if shortfalls arise. The proposed measures include taxing major technology firms and enforcing a 15% global minimum tax on multinational corporations.

Aligning with G20 goals

Dario Durigan, the Finance Ministry’s executive secretary, highlighted that these proposals align with Brazil’s ongoing role as chair of the G20, focusing on global tax reforms. He acknowledged that implementing such changes is complex and time-consuming due to international approval processes.

In the budget bill presented to Congress on Friday, the Finance Ministry projected a primary surplus of 3.7 billion reais for the next year. The ministry expects to generate 17.9 billion reais from increased income taxes and other adjustments.

The government also proposed modifications to the social contribution tax on corporate income (CSLL) and interest on equity payments (JCP) in a separate bill. 

These adjustments are part of a broader package valued at 46.7 billion reais, which includes ending tax breaks for certain sectors and smaller municipalities, benefits the government has previously struggled to eliminate.

Durigan said that a Senate-passed bill, awaiting approval from the Lower House, retains these tax benefits but only covers fiscal compensation up to 2024. The Supreme Federal Court has ruled that these benefits cannot be granted without proper fiscal balancing.

Expected fiscal gains

The Finance Ministry estimates that tax negotiations could yield 58.5 billion reais next year, including 30 billion reais from a new dispute resolution program with Petrobras. 

Additionally, they forecast an extra 28.5 billion reais from rulings by Brazil’s Federal Administrative Council of Tax Appeals (CARF), which handles administrative tax cases. Correcting tax distortions is expected to bring in another 20 billion reais.

Despite these plans, some experts are skeptical. Rafaela Vitoria, chief economist at Inter Bank, expressed doubts about the feasibility of the proposed tax increases and predicted a 2025 deficit of 110 billion reais, or 0.9% of GDP. Similarly, central bank economists anticipate a primary deficit of 0.76% of GDP for 2025, compared to the target of zero for both years.

(With Reuters Inputs)