Brazil needs tax cuts to improve economy

Brazil requires structural reforms, such as deep cuts in taxes, in order to sustain long-term growth and broad economic development, says Thomas McLarty III, president of Kissinger McLarty Associates.

While Brazil's national income is expected to rise by about 5 percent this year, the high cost of doing business, caused in part by the redundant and onerous tax system, remains a drag on the economy. For example:

  • Brazil's auto manufacturers pay five times more tax than their U.S. competitors.

  • Brazil's 60 percent duty on imported merchandise delivered by express companies such as UPS is so high that it has caused recipients to refuse delivery.

    Overall, Brazil's tax burden during the first half of 2004 was about 38 percent of national income -- up 1.2 percentage points from the same period a year ago.

    McLarty says companies must spend vast amounts on lawyers just to understand the nation's Byzantine tax system. Those that do not are pushed into the informal sector – fully 40 percent of the Brazilian economy is off the books and outside the normal tax structure.

    Source: Thomas F. McLarty III, Brazil's Stellar Performance Will Brighten With Tax Cuts, Investor's Business Daily and Council of the Americas, December 17, 2004.

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    FMF Policy Bulletin/ 01 February 2005
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