A general view shows the city of Rio de Janeiro

Brazil prepares new tax hikes to meet fiscal goal: source

BRASILIA (Reuters) – The Brazilian government plans a new round of tax hikes to meet its fiscal goal this year despite recent efforts to limit public expenditures, an official with knowledge of the decision said on Monday.

President Dilma Rousseff has agreed to increase the PIS and Cofins taxes after the administration announces a spending freeze of up to 80 billion reais ($26.58 billion) later this week, the official said on condition of anonymity.

The official declined to say how much each tax will be raised or provide an estimate of extra revenue. The PIS is a mandatory employer contribution to a savings fund while the Cofins is a levy that helps finance the social security system.

The budget freeze, an annual pledge to contain spending, is a key signal of the government’s commitment with austerity after years of heavy spending that threatened Brazil’s investment grade rating.

The government is also considering raising the so-called CSLL tax on Brazilian banks to make up for the loss in revenues resulting from Congress’ recent decision to water down austerity measures, the official said.

The CSLL is a levy on the profits of companies to contribute to the social security system.

Brazil already has one of Latin America’s heaviest tax burdens. The decision to raise them further reveals just how difficult it has been to restore order to Brazil’s finances.

Unions and members of Rousseff’s leftist Workers’ Party have pushed back against her recent attempts to cut spending.

Congress diluted two measures that will reduce the government savings by at least 3.5 billion reais this year. Another 5 billion reais in extra revenue are up for vote in Congress this week.

Finance Minister Joaquim Levy, a fiscal hawk, has warned he could raise taxes to mitigate those losses in Congress.

The government is trying to save 66.3 billion reais or the equivalent of around 1.2 percent of gross domestic product this year.

In April, the government raised the PIS and Cofins taxes on the financial income of non-financial companies to collect an extra 2.7 billion reais this year.

That same month, the shares of Brazilian banks fell after reports that the government planned to increase the CSLL tax rate to 17 percent from 15 percent.

The shares of Brazilian banks Itaú Unibanco Holding SA <ITUB4.SA> and Banco Bradesco SA <BBDC4.SA> were down 2.38 percent and 2.85 percent, respectively, on Monday.

(Reporting by Alonso Soto, Editing by Brian Winter and Richard Chang)


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