December 27, 2013 / 10:12 PM / in 4 years

UPDATE 1-Brazil hikes IOF tax on debit card purchases abroad

BRASILIA, Dec 27 (Reuters) - The Brazilian government said on Friday it will raise a tax on operations with debit cards and travelers checks made abroad, in a move that will raise the country’s tax intake by 552 million reais ($234.65 million) per year.

Starting on Saturday, the government will hike the financial operation tax, known as IOF, to 6.38 percent from 0.38 percent on those operations. The increase comes at a time when many Brazilians travel abroad for holidays.

Brazilians already face some of the world’s highest tax rates and tax evasion is common. Workers in Brazil must pay about 30 percent of their monthly income in taxes, which is similar to what people in rich northern European countries pay.

Brazilians often complain that high taxes have done little to improve the country’s poor public education, dilapidated hospitals and crowded transportation systems.

Higher taxes will help the government of President Dilma Rousseff fatten state coffers after a rapid deterioration of fiscal accounts due to an increase in public spending and a slew of tax breaks for local businesses to boost the flagging economy.

A rapid increase in spending by Brazilians traveling abroad over the last few years has helped widen the country’s current account deficit sharply. The higher taxes will also be charged on the purchase of foreign currency abroad and operations involving pre-paid cards outside Brazil.

The finance ministry said in a statement that the move aims to stop consumers using one payment method over others because of tax benefits. Brazilians had been using travelers checks and debit cards abroad instead of credit cards as transactions on them paid a lower tax rate.

Traveling Brazilians usually come back home with several suitcases filled with clothes, shoes and electronics, which are much more expensive in Brazil than abroad partly because of the high taxes charged on them.

The ministry said the IOF tax charged on the purchase of foreign currency in the Brazilian market remains unchanged.

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