Brazil is the most populous country in Latin America, the sixth biggest globally, and the world’s eighth largest economy. With vast natural resources and an extensive, young labor pool, it is Latin America’s economic powerhouse.
Following a period of rapid growth prior to 2009, the annual rate of increase in gross domestic product (GDP) has slowed and is projected at 3 percent from 2014 to 2018.
New spending initiatives on health, education and public transport in response to the mid-year 2013 protests, plus the impact of the electoral cycle, means that fiscal policy should remain expansionary throughout 2014, with any adjustment likely to be postponed until 2015. Brazilian policy makers will also have to address the financial burden of an aging population. The maintenance of fiscal discipline should ensure that the gross public debt decreases towards 40 percent of GDP. Monetary policy should remain focused on taming inflation and postponing upward adjustments until 2015.
Although antitrust and competition laws and regulatory agencies have been in place since the 1960s, until recently there was little active enforcement of rules against market dominance. Brazil’s new antitrust legislation, in force since 29 May 2012, applies fines of 0.1–20 percent of a company’s gross revenues for anti-competitive practices. Mergers and acquisitions in petroleum, energy and telecommunications must be examined and approved by the respective regulatory agency. Mergers are ruled out only where it is felt they could create monopolistic conditions.
Despite a falloff in FDI in 2012, Brazil remains an attractive destination. This reflects its macroeconomic and political stability, economic opportunities and large domestic market. Foreign ownership is limited to 30 percent in open-broadcast and print media companies and to 49 percent for cable television companies (Law 10,610 of 2002). There is a 20 percent limit on foreign investment in domestic airlines, and the government administers commercial airport operations. FDI continues to be welcomed, but domestic investors receive preferential treatment in some areas. By 2018, a rise in tax incentives for both foreign and domestic investors should increase Brazil’s attractiveness as an export base.
During 2014–2015, domestic capital markets should develop further, but long-term financing will remain costly and hard to obtain. Subsidized lending through the state development bank should ease financing for larger firms. During 2016–2018, renewed growth in domestic equity and bonds is expected, while greater competition should support a gradual fall in borrowing costs.
The effective tax rate on corporate income is 34 percent. This figure comprises two taxes: corporate income tax, which has a base rate of 15 percent plus a 10 percent surcharge on monthly income exceeding R20,000 or annual income of R240,000, plus a social contribution on net profit, which is generally levied at 9 percent. A 15 percent tax applies to capital gains. Cities levy a municipal tax on services at 2–5 percent. Most large municipalities charge 5 percent on each billing. Efforts are being made to simplify the tax system. By 2016–2018, revenue from taxation on strategic oil and mining operations is likely to increase.
KPMG in Brazil has approximately 4,000 professionals and 22 offices distributed across 13 states and the Federal District.