Brazil had already promised — in 2020 — to eliminate the Tax on Financial Transactions (IOF) in the discussions at the Organization for Economic Cooperation and Development (OECD). This tax, in any case, would not be an obstacle for Brazil to start membership negotiations, but certainly its elimination will facilitate the country’s adaptation to the entity’s rules, according to sources consulted by Valor.
Economy minister Paulo Guedes said Wednesday that the OECD invitation to Brazil was made possible after the Congress passed the Foreign Exchange Law at the end of last year. It allowed the Secretariat of Federal Revenue to commit to reducing IOF on international flows. And it also committed to do this in a letter sent last week to the OECD.
The Secretary of International Affairs of the Economy Ministry, Erivaldo Gomes, said: “In fact, it is not necessary to remove the IOF to start the accession process. But it is necessary to enter the codes of capital liberalization and invisible transactions, and to complete the accession process.”
In 2017, Brazil asked to join the OECD. At the same time, it anticipated and asked for accession to the Capital Movement Liberalization and Current Transactions Codes. These standards allow, for applying countries, gradual progress toward liberalization of capital, investment, and services, with an expectation of improvement in the business environment.
The OECD Investment Committee then created a specific group and analyzed policies in Brazil that were considered relevant to the accession to both codes. This group then mentioned the IOF, seen as discriminatory. Applying countries can have a list of exceptions, but those cannot be very different from the ones of other countries belonging to the entity.
In the discussions, it was agreed that Brazil would not eliminate the IOF but would zero the rates starting from a schedule that would begin in 2021. The measure was pending approval of the foreign exchange law in Congress. What Mr. Guedes did last week was to reaffirm this promise. With this, the Investment Committee will be able to finish its report on Brazil.
The report will go to the OECD board. Then, Brazil will approve the decree on the IOF, and the committee finally decides whether to approve Brazil’s treaty accession to the two codes. All of this happens in a process that is independent of OECD accession, but which in practice is essential for the country’s acceptance by the entity.
Mr. Gomes notes that the IOF on foreign exchange generates some distortions in economic transactions abroad, negatively affecting domestic and foreign investors, as well as citizens.
“One of the distortions condemned by the OECD and the IMF is multiple exchange rates, that is, different exchange rates for different transactions,” says the secretary, noting that the IOF has five rates for different types of exchange operations.
According to Mr. Gomes, this taxation “discourages and/or increases the cost of investments in Brazil since the mere flow of resources are punished with taxes before they produce any economic result.”
He notes that the OECD codes do not allow the use of this type of measure that is considered discriminatory, “but allow the use of macroprudential regulatory measures that are non-discriminatory.”
Source: Valor international