March 16, 2017 / 3:08 PM / a year ago

Brazil to appeal tax ruling; finance minister downplays impact

FRANKFURT, March 16 (Reuters) - Brazil’s government will appeal a court decision that is expected to reduce revenue from social security levies, Finance Minister Henrique Meirelles said on Thursday, adding that the impact from the ruling is likely to be much smaller than local media reported.

The Federal Supreme Court ruled 7-4 on Wednesday that the inclusion of the ICMS value-added tax in the base of calculation for so-called PIS and Cofins social security contributions was unconstitutional. The decision is seen as triggering large revenue losses for the government and accelerating moves to increase taxes.

Local media have reported that the cost of the ruling could reach 100 billion reais ($32 billion) for the past five years and 250 billion reais if recognized retroactively since 2003, when a legal dispute surrounding the issue began.

Potential losses would probably be much lower than that since “the number of lawsuits is relatively low,” Meirelles told reporters on the sidelines of a conference in Frankfurt. “We don’t have a precise estimate, but we can say the numbers will be much lower.”

In the ruling, justices said the ICMS did not represent a share of corporate revenues and therefore could not be levied to finance social security. The PIS and Cofins taxes are charged to almost all goods and services sold in Brazil, including food and electricity.

Lawyers have said the decision, which ends a 14-year dispute between the government and several companies, could lead to declining prices for some products but also squeeze federal tax collections amid a record budget deficit.

The government is considering raising the CIDE fuel levy and the IOF financial transactions tax to increase revenue, two people briefed on the matter told Reuters. An announcement is expected on Wednesday.

$1 = 3.0951 reais Reporting by Arno Schuetze; Editing by Guillermo Parra-Bernal and Lisa Von Ahn

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