Brazil’s tax reform gets approval in the lower house of Congress

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Brazil’s long-awaited tax reform has cleared a key hurdle after the lower house of Congress voted to approve the bill.

Finance Minister Fernando Haddad hailed the successful vote on legislation simplifying the net of duties and levies. Tax reform efforts have been troubling lawmakers and officials for years.

“After decades, we passed tax reform. It seemed impossible. Haddad said, “It was worth fighting for.”

The legislation to amend the constitution now faces two more votes in the Senate. If fully approved, the tax overhaul would mark a significant political victory for leftist President Luiz Inacio Lula da Silva, who has struggled with an opposition-dominated legislature since taking office in January.

It could also boost growth, with a 2.39 per cent increase in GDP over the next eight years, according to estimates by the Institute for Applied Economic Research.

“Sustainable growth can only happen with tax reform,” said Simon Tebbet, the government’s planning and budget minister. “It’s the only silver bullet we have.”

Latin America’s largest economy has been hampered for decades by the complexity and ambiguity of its tax regime. According to the World Bank, it takes about 1,500 hours for a medium-sized company in Brazil to prepare and pay taxes, by far the most in the world. In contrast, it takes 175 hours for a US company and 114 hours for a UK group.

According to the Brazilian Institute for Planning and Taxation, during the last 34 years, an average of 37 tax rules were changed every day.

The bill introduced before Congress would replace multiple taxes with just two value-added taxes, one federal and one local. Taxpayers will move to the new rates between 2026 and 2032. The standard VAT rate is expected to be around 25 percent.

The reform also proposes to end the system of taxing goods where they are produced and move to a model where duty is levied at the point of consumption over a 50-year transition period.

Joao Camargo, president of Asfera Business Group, said the reform would improve “(Brazil’s credit) rating and bookkeeping and reduce the complexity of the tax system”. “It will be a great reform for the country,” he said.

Political analysts credit the previous right-wing Jair Bolsonaro administration with laying the groundwork for passing the current amendment. Tax reform efforts by previous governments were based on political lobbying and deeply vested interests, especially at the state and municipal levels.