by Daniela Machado, Filipe Pacheco e Beatriz Cutait – Valor Econômico Online
The Brazilian tax burden has always been a hindrance to Brazilian market growth. Therefore, a reduction of the Tax on Financial Transactions (IOF) rate from 2 percent to zero for foreign applications on shares, venture capital, and the cancellation of Brazilian companies’ shares receipts negotiated abroad, as well as a decrease of the IOF rate from 6 percent to zero on non-resident investments on long-term bonds (“Government encourages foreigners to come back after reducing to zero the IOF for shares and bonds” – Valor Econômico Online), can be an effective short-term strategy to attract new foreign investors to its stock market. However, we must not forget that the main issue at this time that has kept foreign investors reluctant to explore the Brazilian stock market is the current European financial crisis and the lack of plausible solutions being offered to remedy this situation. Thus, stronger measures, like issuing financial packages to the European countries now in crisis, even by means of the International Monetary Fund (IMF), would not only generate financial benefits in the future for Brazil and enhance its stature within the international community, but this initiative would also indirectly help the strong but faltering Brazilian stock market, which declined 17.93 percent this year (IBovespa index – 11/30/11).