E-Malt.com News article: Brazil: Government raises beer tax by around 1 cent an item

Brazil raised a tax on beer and some other drinks, betting that consumption during the soccer World Cup in June and July will help shore up its finances, The Wall Street Journal reported on April 1.

The government said the increase, effective immediately, applies to beer, some juices, and energy and sports drinks. Dyogo Oliveira, a senior finance ministry official, said the tax increase had been postponed from October and would raise an estimated 200 million Brazilian reais ($85 million) this year to help bolster the government's finances. The tax is equal to around 1 cent an item, the government said.

The Brazilian government has been criticized for allowing spending to rise in recent years. An subsequent increase in public debt was one of the reasons behind Standard & Poor's decision last week to cut the sovereign credit rating of Latin America's largest economy by one notch to the lowest investment-grade level.

Customers expressed dismay about the tax, saying it would add to the pressing concerns about inflation in this nation of 200 million people.

"I think this increase is a disgrace, because even if it's only a small amount, I'm going to have to spend a bit more of my cash," said Luis Fontes, a 38-year-old a taxi driver who was sitting at the Portal da Paulista bar drinking coffee on a break.

"I'm already having to pay more for my cigarettes, now it's beer. I think this government is going to finish off all my bad habits with these taxes," he said.

Inflation in Brazil is running at just less than 6%, and it has been climbing in recent months because a drought in the southeast and center-west has driven up food prices.

The central bank has raised its key interest rate to 10.75% to combat inflation and is widely expected to make another move on Wednesday, after its latest monetary policy meeting ends.

Ricardo de Souza, 38 years old, who manages the Portal da Paulista bar, said he suspects the government wants to reap a windfall from the World Cup.

"I think the government did this now, as there are a whole lot of foreigners coming here and they won't care about this increase because they will pay in dollars," said Mr. de Souza.

Brazilians, he said, are "very sensitive to price and any increase, even if it's minimal, has an impact on sales of beer."

Mr. de Souza says he has enough beer in stock to last two weeks, but that after that he will have to buy more beer at the higher price and will have to pass that on to customers. The bar sells around 2,200 beers a month, which accounts for about 20% of revenue, he said.

The Brazilian government has sought to avoid tax increases on consumer products in recent years to keep down inflation and help maintain demand, one of the key drivers of the Brazilian economy. Mr. Oliveira declined to comment on any impact on inflation.

"The impact of this inflation is very small," said Flavio Serrano, an economist at BES Investimento. "Maybe the government wants to send a signal that it is correcting some points in terms of trying to control prices, but it's not enough to state that concretely. What would have a real impact is if they alter the prices of electricity and gasoline, which need to be readjusted."

The government said it plans to raise taxes on soda in October.

"That won't happen before the elections," he said.

According to Credit Suisse, the move means retailers will have to increase prices to customers by around 0.8%, as the tax would be implemented only for eight months this year. The investment bank said it should be "relatively easy" for the country's largest drinks company, Companhia de Bebidas das Americas SA, or AmBev, to maintain its revenue forecasts for this year.

Nonetheless, there could be another annual tax adjustment in October, which could lead to another need to increase prices, according to the investment bank.


02 April, 2014