UPDATE 1-Brazil says no decision on cutting fixed-rate bond tax
* Newspaper says government mulls tax cuts on some debt
* Many Brazil investors expect central bank rate hike
* Cutting taxes for fixed-rate bonds would help boost demand
SAO PAULO, Feb 19 (Reuters) - Brazil's government has not yet decided on a plan to lower taxes on fixed-rate debt investments, a finance ministry spokeswoman told Reuters on Tuesday, in response to a report by a local newspaper on Tuesday.
According to Valor Econômico newspaper, which did not say how it obtained the information, cutting taxes on fixed-rate bonds would help the government discourage demand for local bonds whose yields are pegged to short-term interest rates.
A spokeswoman for the finance ministry told Reuters that "it is not true" that the plan being considered would cut income taxes to 15 percent from the current 22 percent on fixed-rate instruments as well as funds investing in such types of debt with maturities longer than one year.
"There is also no decision on changing the taxation regime for fixed-rate debt," the spokeswoman said.
Some believe the central bank is considering raising the Selic for the first time in more than 1-1/2 years to head off quickening inflation. Usually, when central bank policymakers raise the Selic, investors tend to migrate from fixed-rate debt toward floating-rate debt to benefit from higher yields.
About 15 percent of the 2 trillion reais ($1.02 trillion) of investor money currently in investment funds is pegged to the Selic or another short-term interest rate gauge. According to one source within the government's economic team, the lower tax burden for fixed-rate debt "would entice longer-termed investments and detach them from short-term rates," Valor said.
A group of finance ministry economists is defending that the lower tax burden only applies to fixed-rate instruments with maturities longer than two years, Valor said. Investments pegged to the overnight Selic lending rate - the central bank's benchmark rate - could bear a heavier tax burden under the plan, the paper added.
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