Page last updated at 15:56 GMT, Thursday, 13 December 2007

Key Brazilian tax is thrown out

By Gary Duffy
BBC News, Sao Paulo

Brazilian real notes. File photo
The government stands to lose billions of dollars in revenue a year

The Brazilian government has suffered a major defeat over a key financial transactions tax which accounts for $20bn (9.8bn) in annual revenue.

It fell four votes short of at least 49 needed in the Senate to renew the tax, known as the CPMF.

The failure to renew the tax, which expires on 31 December, could have implications for important anti-poverty programmes in the country.

It is also a significant blow for President Luiz Inacio Lula da Silva.

Unpopular tax

As a constitutional measure, the renewal of the tax until 2011 needed the support of at least 49 of 81 senators. However, only 45 senators voted in favour.

The longstanding tax represented about 10% of the government's revenue.

However, the CPMF, which involved a charge on all financial transaction such as bank withdrawals, was unpopular among many sections of Brazilian society.

Critics said the tax was meant to be a temporary measure to subsidise health case but the revenue was used for other things and it required poorer sections to pay as much as the better off.

Ministers conceded that Brazil needed to lower its tax burden, but argued that removing such a major source of revenue that was vital to maintain many social policies was not the way to reach this objective.

The defeat came despite the election a short time earlier of a government ally, Garibaldi Alves, as the new president of the Senate.

His predecessor, Renan Calheiros, also a supporter of President Lula, had to resign over a long-running corruption scandal.

However, with local elections due in the next year, it seems opposition parties were not in the mood for compromise over tax.

The defeat has also exposed the government's inability to manage a key part of its own agenda.

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