BRAZIL - The Brazilian Congress is poised to vote within the next few days on a new tax regulation proposal for pension funds aimed at increasing long term investments.
The proposal, sent to Congress by the government in August, removes the current 12% tax on employer contributions and in addition, reduces the tax on earnings over time. So when plan participants cash out their pension, instead of being charged a rate based on the value of their earnings, they will be taxed according to a time scale.
“The new rule says that the longer you keep your money in an investment fund, less taxes you will pay,” explains Eduardo Freitas, ANAPP director and executive director of pension administrator MAPFRE.
“If you invest your money for only six months, you will pay more. The private pension funds administrators believe that this new regulation will really motivate the public to be more aware about its investment strategy and, in consequence, leveraging the duration of the investments in a pension fund.”
Congress has until the end of November to vote on and, if necessary, amend the regulation, which is due to come into effect on January 1. If this deadline is not met, under Brazilian law, the proposal will be approved without change.
Freitas said currently, pension plan participants are charged a tax rate of between 6% and 27.55% depending on the amount when they receive their annuity or withdraw their money partially.
The tax changes would encourage people to invest for the future – a strategy in line with those employed by pension funds, which generally operate on a long term basis, he added.
Meanwhile the pension industry is lobbying the government to have a new tax exemption on the movement of investments expanded to include pension funds.
Earlier this year the Brazilian government approved the rule that makes the movement of money from one investment to another, for example fixed income to equity, tax free. However the rule currently excludes pension fund investments.
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