* Newspaper says government mulls tax cuts on some debt
* Many Brazil investors expect central bank rate hike
* Cutting taxes for fixed-rate bonds would help boost demand
SAO PAULO, Feb 19 Brazil's government has not
yet decided on a plan to lower taxes on fixed-rate debt
investments, a finance ministry spokeswoman told Reuters on
Tuesday, in response to a report by a local newspaper on
According to Valor Econômico newspaper, which did not say
how it obtained the information, cutting taxes on fixed-rate
bonds would help the government discourage demand for local
bonds whose yields are pegged to short-term interest rates.
A spokeswoman for the finance ministry told Reuters that "it
is not true" that the plan being considered would cut income
taxes to 15 percent from the current 22 percent on fixed-rate
instruments as well as funds investing in such types of debt
with maturities longer than one year.
"There is also no decision on changing the taxation regime
for fixed-rate debt," the spokeswoman said.
Some believe the central bank is considering raising the
Selic for the first time in more than 1-1/2 years to head off
quickening inflation. Usually, when central bank policymakers
raise the Selic, investors tend to migrate from fixed-rate debt
toward floating-rate debt to benefit from higher yields.
About 15 percent of the 2 trillion reais ($1.02 trillion) of
investor money currently in investment funds is pegged to the
Selic or another short-term interest rate gauge. According to
one source within the government's economic team, the lower tax
burden for fixed-rate debt "would entice longer-termed
investments and detach them from short-term rates," Valor said.
A group of finance ministry economists is defending that the
lower tax burden only applies to fixed-rate instruments with
maturities longer than two years, Valor said. Investments pegged
to the overnight Selic lending rate - the central bank's
benchmark rate - could bear a heavier tax burden under the plan,
the paper added.