Brazil government poised to cut debts and tax for farmers: source

BRASILIA (Reuters) - Brazil’s government has agreed to reduce farmers’ unpaid tax bills and lower an agricultural tax, an official close to the negotiations said on Wednesday, in a nod to the politically powerful farm lobby.

The help comes a day after President Michel Temer slashed debts that states and municipalities owe in pension contributions, in an effort to win more support for his unpopular pension reform proposal.

The government is preparing a decree to reduce the farm tax known as Funrural to 1.5 percent from 2.3 percent and give a 100 percent discount on fines and 25 percent discount on interest from unpaid taxes. Payment of those tax bills in arrears would also be extended for 15 years, said the official, who asked for anonymity to speak freely.

To gain those benefits debtors would need to pay 5 percent of their total tax debt in five installments, but the government has not yet decided whether those payments would be monthly, the official said.

The congressional farm caucus, which is made up of 246 congressmen, is considered one of the most powerful political groups in Brazil’s Congress.

Congressman Nilson Leitao, the head of the caucus, said the government also needs to find a way to include producers who have made partial payments of their debts.

He said there are some 10 billion reais ($3.20 billion) of outstanding Funrural tax debts.

It is not clear how much the government is giving up in future tax revenue, but the official said the agreement would increase short-term tax collection.

Finance Minister Henrique Meirelles said on Wednesday he expects to reach an agreement on the matter on Thursday, but did not specify the terms of the deal.

A finance ministry press official was not immediately available for comment.

In March, the Supreme Court found the tax constitutional, in a blow to thousands of farmers who had not paid the duty for years while awaiting a court decision.

Temer, a seasoned politician who became president last year after the impeachment of leftist Dilma Rousseff, is struggling to obtain the 308 votes needed to approve a pension reform key to his plan for closing a yawning fiscal deficit.

The reform proposal needs to be approved by a two-thirds majority in two votes in both chambers of Congress. An initial vote in the lower house is expected in late May or early June.

($1 = 3.12 reais)

Reporting by Alonso Soto; Editing by Matthew Lewis