By Bruno De Nicola, Contributing Reporter
Saving accounts holding an amount greater than R$50,000 will likely be subject to a new partial income tax starting in 2010, while tributary tax pressure on investment funds will drop from 22% to 15% by the end of the year.
If the Congress approves the new tax bill, the new tributary system will be based on a complex equation strictly correlated to the trend of the Interest Rate (Taxa Selic), which is now stable at 10.25%. If the Selic should raise above 10.50% the bill would then be considered ineffective.
The saving account income tax, which does not yet effectively exist, will indeed affect a very small group of people, just about 1% of the bank accounts in the country. A mere 894,859 accounts, however constitutes roughly 41% of the total capital in saving accounts in Brazil, adding up to approximately R$270 billion.
The government designed the bill to avoid a migration of investors to saving accounts, because of their higher benefits and tributary exemptions. “We don’t want big investors to thrive off the potential benefits of a system created for small savers” says Finance Minister (Ministro da Fazenda), Guido Mantega, who believes that a strong financial migration could create unbalance in the system.
The new income tax should become effective starting in 2010, but in order to make saving accounts look immediately less attractive to investors, the government plans to reduce the income tax on investment funds within the current year. Minister Mantega briefly explained that the current tax rate on such funds, which now stands at 22.5%, could rapidly fall to 15%
The new system demands elaborate calculations. Only the amount in excess of the R$50,000 milestone will be subject to this new income tax. Which means that if a saver has R$75,000 in his/her savings account, only R$25,000 would be subject to this new income tax.
There are exceptions as well. Those whose saving account represents the only source of income will benefit from a lower tributary pressure, in accordance with the trend of the Selic rate.
Since the beginning of his first mandate, president Lula and his entourage have made incredible efforts to lower inflation, most of which were made through the application of very high interest rates and their consequent retaining effects. In 2005 the Selic rate was just under 19%, while the country risk (also referred to as political risk) coefficient remained very attractive even for foreign savers.
The new tax law appears to be a clear inversion of financial policy in its aim to promote investment funds in order to keep economy running in 2010, when the peak of the crisis is expected to reach Brazil.