611.3231/4–847
The Chargé in Brazil (Brooks) to the Secretary of State
No. 2019
The Embassy has the honor to refer to the Department’s instruction no. 576 of March 12, 1947, file no. 611.3231/3–1247, instructing it to bring to the attention of the Brazilian Government the conflict of the existing Brazilian consumption tax law with the trade agreement and the provisions of the ITO Charter, and to its despatch no. 1872 of March 21, 1947,80 enclosing a copy of a note on the subject sent to the Brazilian Foreign Office.
No reply has as yet been received to the Embassy’s note, but the following data is submitted for the Department’s information.
A member of the Embassy visited Mr. Arthur Simas Magalhães, Director of Internal Revenue, and, as press notices had indicated studies were to be undertaken for the revision of the consumption [Page 424] tax, the Director was asked whether there was anything new on that subject. Mr. Magalhães said that within a few days the Minister of Finance81 was expected to appoint members to the committee which would undertake such studies and he would welcome any suggestions the Embassy cared to make. In reply it was said that we had one suggestion to make, which had already been made on various occasions in the past, namely, that the rates on imported and domestic goods be equalized. In reply to that statement Mr. Magalhães said that some preference should always be given to domestic commodities. In view of that reply the essence of the Embassy’s note to the Foreign Office was mentioned to him and he was asked whether that note had not yet been brought to his attention. To this he replied in the negative, but expressed considerable interest therein because it might affect the studies to be undertaken.
The contemplated revision of the consumption tax is namely to bring it in line with the provisions of the new Constitution, which provides under article 15, item 6, that goods classified by law as the minimum indispensable to living quarters, wearing apparel, food and medical treatment of persons of restricted economic capacity should be exempt from the consumption tax.
Mr. Magalhães’ first reaction to the information contained in the Embassy’s note to the Foreign Office appeared to be that much more extensive work would have to be done in connection with the revision if taxes had to be equalized. He mentioned that consumption tax revenue from imported goods amounted to a very large sum and considerable revenue would be lost if the rates were reduced to those applicable to domestic goods. While recognizing that the Internal Revenue office was in a position to find a solution for that problem, it was mentioned that if the revenue feature was the main one to be considered a simple solution appeared to be to average the present rates, i.e., increase the taxes on domestic goods and lower them on imported ones. This solution seemed feasible to him within certain limits. He specifically mentioned the tax on alcoholic beverages, stating that in some cases the rate on those imported was 400% greater than on similar domestic beverages. He said that despite this heavy taxation imports of alcoholic beverages have not decreased, so that it was apparent the imported articles of this class could stand the taxes established, which provided considerable revenue. He added that he was sure the domestic industry could not operate on such heavy taxes and he did not see how the rates could be equalized on beverages without considerable loss of revenue.