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By Anna Kaiser, Contributing Reporter

RIO DE JANEIRO, BRAZIL – The Brazilian government announced yesterday that it will zero the IOF tax (Tax on Financial Transactions), in an effort to protect the weakening real in response to the strengthening dollar. The U.S. currency closed at R$2.154 yesterday, the lowest exchange rate for the Brazilian real in four years.

IOF Tax Zeroed to Protect the Real, Rio de Janeiro, Brazil News
Brazilian Minister of Finance, Guido Mantega, photo by Marcello Casal Jr/ABr.

The IOF tax for foreign transactions, established in July 2011, is a 1% tax on financial transactions known as derivatives, or “apostas,” which are investments with expectations for positive performance by both foreign and Brazilian companies and banks in the future market.

This is the government’s second economic intervention this month to cope with the dollar’s strengthening. Another tax reduction of the IOF tax took place at the beginning of the month, suspending the tax for fixed income investments for foreigners.

“We are reducing this rate to facilitate for those who want to be in the position to sell the dollar. There will be a bigger offer of the currency in the future market, and with this, a diminution of the value of the dollar,” explained the Minister of Finance, Guido Mantega.

According to Mantega, the Brazilian government is reacting to the current changing value of the dollar. The IOF tax was implemented at a time when the dollar’s value was dropping, but now, given the dollar’s appreciation, they must adjust accordingly.

The reduced tax rate goes into effect today, June 13th.

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