Brazil raises growth forecast, expects to raise $ 20,000 million with tax reforms

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By Camila Moreira and Ricardo Brito

SAO PAULO / BRASILIA, Jul 14 (Reuters) – Brazil hopes to raise 100 billion reais ($ 19.64 billion) with a long-awaited income tax reform proposal, Economy Minister Paulo Guedes said on Wednesday, as the government it dramatically raised its economic growth forecast for 2021.

The Economy Ministry said on Wednesday that the Gross Domestic Product of Latin America’s largest economy should grow 5.3% this year, up from its previous forecast of 3.5%. It also raised its inflation expectations for 2021 to 5.90% from a previous forecast of 5.05%.

Still, the central bank, which operates independently of the ministry, said earlier on Wednesday that the Brazilian economy contracted in May, surprising economists, who had expected growth.

The IBC-Br economic activity index, a leading indicator of GDP, fell to a seasonally adjusted 0.43% in May, compared with the median forecast of a 1% rise in a Reuters survey of economists.

Overall, the reviews and announcements show that the Brazilian government is optimistic about the economic recovery, even though the country is suffering one of the worst death toll in the world due to the coronavirus pandemic.

Guedes told reporters that Brazil had already raised R $ 100 billion in tax revenue above expectations and that an income tax reform proposal presented this week would raise another R $ 100 billion.

The proposal will reduce Brazil’s corporate income tax, but add rates to corporate dividends and reduce subsidies to generate additional tax revenue, Guedes said. Corporate taxes could be lowered by up to 12.5 percentage points, compared to 34% today, he added.

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Guedes stressed that he does not want to tax the companies, but the “rich owners” who benefit from the profits of those companies. The reform has been presented to Congress, which has yet to discuss it and could significantly modify it.

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