Brazil delays plans to raise taxes on soda, beer until after World Cup tournament; tax will be postponed until September

Nevin Barich

BRASILIA, Brazil , May 13, 2014 (Bloomberg LP) – Brazil’s government has delayed plans to raise taxes on beer and soda until after the World Cup soccer tournament, bowing to pressure from beverage makers including Ambev and Coca-Cola.

Brazil will postpone the tax increase to September from the original start date of June, Finance Minister Guido Mantega told reporters today. Mantega made the announcement on the levy, which is expected to raise prices by an average of 2.25 percent, after meeting with beer makers’ executives in Brasilia earlier today.

President Dilma Rousseff’s administration is seeking to boost tax revenues to shore up fiscal accounts after Standard & Poor’s handed Brazil its first sovereign credit downgrade in a decade. S&P on March 24 warned that sluggish growth and expansionary fiscal policies are driving the country’s debts higher. Mantega later called S&P’s decision a mistake and assured he would rein in tax breaks.

“In three months we’ll have an increase” that will be implemented gradually over years, Mantega said about the tax. “We are concerned about inflation remaining under control, and this sector can make a major contribution. We made an agreement that there would be no price increase during the Cup.”

Swap rates on the contract due in January 2015, the most traded in Sao Paulo today, fell one basis point, or 0.01 percentage point, to 10.99 percent at 2:01 p.m. local time. The real strengthened by 0.2 percent to 2.2106 per U.S. dollar.

MINIMAL IMPACT

Policy makers said the beverage tax would raise 1.5 billion reais ($680 million) through the end of the year and have a minimal impact on inflation when they announced the measure last month. Since May 2013, the beverage industry has raised beer prices by 23 percent and soda prices by 19 percent, Carlos Alberto Barreto, head of the federal tax agency, said on April 29.

Consumer prices rose 6.28 percent in April from last year, the fastest increase in 10 months and above the central bank’s 4.5 percent target.

Ambev was not expecting the tax increase announced last month, Chief Executive Officer Joao Castro Neves said during a May 7 conference call. Lower taxes drive sales volume and can result in the same amount of tax collected, he said.

Ambev, Coca-Cola, Brasil Kirin, Petropolis, Heineken Brasil and other beverage producers were pushing Brazilian government to delay the tax increase on beer and cold drinks, a person involved in the talks said earlier today.

WORLD CUP

The World Cup, the world’s most-watched sports event, kicks off in Sao Paulo on June 12. The government forecasts 600,000 foreign tourists will attend matches that will be played in 12 Brazilian cities.

S&P in March downgraded Brazil one place to BBB-, a step above junk, with a stable outlook. The move ended a decade-long stretch of upgrades for the world’s second-largest emerging market.

Brazil’s budget gap in 2013 reached 157.6 billion reais, the biggest year-end deficit since the series started in 2002.

Latin America’s largest economy will expand by 2 percent this year, according to central bank estimates. That’s down from 2.3 percent in 2013.

To contact the reporters on this story: Matthew Malinowski in Brasilia at mmalinowski@bloomberg.net; Carla Simoes in Brasilia Newsroom at csimoes1@bloomberg.net To contact the editors responsible for this story: Andre Soliani at asoliani@bloomberg.net Randall Woods, Harry Maurer

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