São Paulo – A presidential decree published in the Official Gazette this Friday (16th) has lifted the Tax on Financial Operations (IOF) levied on foreign exchange derivatives operations conducted by exporters, known as hedging operations. These are carried out by exporting companies to protect themselves from eventual exchange rate fluctuations when being paid for the exported products.
A 1% IOF rate used to be levied on this type of operation. The tax was implemented in the second half of last year to curb speculation and stem the flow of dollars into Brazil. Ever since, exporters have complained that the measure caused forex derivatives operations to become expensive. Enterprises had the option of discounting the IOF payment from other tax payments, but in practice they were unable to do so due to accumulated credits pertaining to other taxes.
The decree issued this Friday exempts companies from paying the tax for up to a limit roughly equal to their respective exports. The aim is to benefit only those who perform the operations as a form of insurance, and not those willing to speculate in the foreign exchange market. The ceiling for the IOF exemption is 1.2 times the total exported by the company at hand in the preceding year.
Early this week at a hearing in the Brazilian Senate, Finance minister Guido Mantega had stated that the government would adjust the foreign exchange-related measures taken to curb speculation in the country, and which were causing losses to exporters.
The decree also impacted on the foreign exchange market this Friday, causing the dollar to operate in near-stability in the morning. At around 11:00 am, the dollar had dropped by only 0.05%, and stood at 1.801 real (sale) and 1.803 real (purchase).
*Translated by Gabriel Pomerancblum
