Brazil will not levy taxes on all foreign capital

SAO PAULO: Brazil will not further expand taxes to all foreign capital but could step up defensive measures to shield its pharmaceutical and agrochemical industries from foreign competition, Industry Minister Fernando Pimentel said in an interview published on Sunday.

Pimentel told O Estado de Sao Paulo that Latin America's biggest economy will have to get used to a strong real as a result of heavy capital inflows attracted by the country's high interest rates.

But asked whether the government would generalize a 6 percent tax on financial transactions recently expanded to debt of up to five years in the hope of curbing short term foreign deposits he said: "No. It is not going to happen."

However, Pimentel signaled the government could take further steps to protect its industry battered by the appreciated real but also by a heavy tax burden, bureaucracy and red tape.

"The world is showing that whoever has the demand, controls the supply ... And we have a market of almost 200 million Brazilians. We have the ball. That is why people want to invest here, sell their cars here. Why would we give up that power?"

Questioned about the industries the government may want to protect Pimentel said: "We are working intensively on pharmaceuticals, chemicals, electronics and fertilizers."

Brazil announced earlier this week a series of tax breaks and subsidized credit for several industries in an effort to support the country's fragile economic recovery, measures critics say are just palliative and insufficient.

President Dilma Rousseff said domestic demand is key for the BRICS nation to resume vigorous economic growth after a disappointing 2.7 percent in 2011.

She has also accused rich countries of unleashing a "Tsunami" of cheap capital that is propping up the currency and leading to a flood of imports while making the country's exports less competitive.

Concerned about increasing trade imbalances, Brazil last month imposed quotas on auto imports from Mexico prompting criticism for what many see as a surge in protectionism.

But Pimentel told O Estado de Sao Paulo that Brazil is playing by the rules and could not be challenged at the World Trade Organization.

"There are always going to be people complaining and gritting their teeth but nobody is going to set a panel against us."