Brazil’s government submits rules to streamline consumption taxes

By Thomson Reuters Apr 24, 2024 | 5:28 PM

BRASILIA (Reuters) – Brazil’s government submitted proposed rules to Congress on Wednesday to carry out a historic tax overhaul approved last year, a key element of President Luiz Inacio Lula da Silva’s strategy to foster growth in Latin America’s largest economy.

The Finance Ministry said in a statement the bill contains most of the regulations needed to implement the constitutional amendment approved last year, and that a second proposal will be sent to lawmakers in the coming days specifically addressing management and oversight of the new taxes.

The reform’s goal is to enhance productivity by streamlining Brazil’s complex tax framework, known for burdening businesses with significant compliance costs.

The reform consolidates five existing levies into a value-added tax (VAT) with separate federal and regional rates, to be determined through the complementary bills. Full implementation of the new taxes is expected only in 2033.

It also introduces a selective tax targeting products considered harmful to the environment and health.

Speaking to reporters, Finance Minister Fernando Haddad said that the consumption tax rate is currently around 34%.

With the reform and its regulation, the expectation is that the system will become digital and curb evasion and fraud, which could pave the way for this rate to be reduced even with the foreseen exceptions for some sectors, he said.

Bernardo Appy, the ministry’s tax reform secretary, said that the expected average rate with the reform would be 26.5%.

Haddad, who went to Congress to deliver the text, also said the tax reform should drive down prices of popular consumer products as they will no longer be subject to multiple layers of taxes.

The government will disclose more details of the bill in a press conference on Thursday morning, he said.

(Reporting by Maria Carolina Marcello, Marcela Ayres and Bernardo Caram in Brasilia; Editing by Leslie Adler and Sonali Paul)