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May 15, 2012

Brazil Cuts Electricity Costs to Save Doomed Economy



High taxes are among the reasons why Brazil’s economy is teetering on the brink of a recession. President Dilma Reusseff announced a few months ago that she would cut taxes in the automotive industry, but critics argued that this was not the drastic move needed to save the Brazilian economy. Anonymous officials have informed Reuters that cutting electricity taxes will have the most “far-reaching impact” to date. Electricity taxes are identified as the predominant culprit in stifling the growth of Brazil’s industry.

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Why electricity? Brazil has the third-highest power costs in the world, after Italy and Slovakia, costing on average $180 per megawatt. Steel and petrochemical consumers and companies, arguably the biggest victims of high electricity taxes, may experience tax relief ranging from 3 to 10 percent, following the announcement scheduled for the upcoming weeks. These industries have remained relatively stagnant since 1985, since electricity consumes 35% of those industries’ expenses. Reusseff tells reporters, "What I have done is take little measures that, in their totality, create greater tax breaks, which is fundamental for the country to grow." Brazilian officials claim that the strategy to reduce electricity taxes first, came from identifying that particular area as having the most potential for substantial change.

"We know that taxes in Brazil are crazy, and we're trying to do something about it,” an anonymous official revealed to Reuters (News - Alert). Brazil’s mobile market has one of the highest industry taxes in the world. An investigation of Brazil’s mobile consumption by Strand Consult, reveals how the mobile industry is a microcosm for Brazil’s financial predicament. Over three million Brazilians are using their mobile phones to download language apps as educational tools, despite the staggeringly high taxes. Although the tools are a poor substitution to a more conventional educational setting, the conventional alternatives are even further out of the average citizen’s financial reach. People involved in the study have concluded that Brazil is in dire need of financial reform.

And financial reform is what the Reusseff Administration is seeking, albeit conservatively for now. Another pressing issue is that the tax system is complicated. Brazilian businesses must spend 14 times the amount of time is takes U.S. businesses to figure out what they owe. Reusseff has expressed interest in simplifying the system. The other major issue is “extremely overhauled” currency. The high interest rates aren’t matching up with the rest of the world’s.




Edited by Stefanie Mosca
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