The Chamber of Deputies of Brazil has approved a sweeping reform of the country’s complicated tax system, marking a significant victory for President Luiz Inácio Lula da Silva, who stated that the new rules will stimulate investment and growth in the country.
The long-awaited tax reform aims to simplify a system widely regarded as excessively burdensome for both individuals and businesses, and to boost economic growth.
The reform “will facilitate investments,” tweeted Lula, who celebrated the approval of the proposal on Friday night (15) and thanked Congress.
The reform – initially approved by deputies in July – needed to be voted on again after the Senate made changes to the text before returning it to the Chamber.
The constitutional amendment was easily approved by margins exceeding 3 to 1.
“After more than 40 years, the country will have a modern, streamlined, and efficient tax system that will change the economy of the country,” tweeted the President of the Chamber, Arthur Lira, adding that it is “not the perfect system, but the one that could be approved.”
What changes?
The tax reform will merge the five main taxes (PIS, Cofins, ICMS, ISS, and IPI) into two value-added taxes: one federal and another to be shared between states and municipalities.
In the current system, the five main consumption taxes are levied at different levels of government, with the 27 federal entities and more than 5,500 municipalities imposing their own rates, often updated.
The system creates differences in interpretation, leading to lengthy legal processes and requiring companies to hire many employees in accounting departments. This reduces budgets for areas such as development and discourages foreign investment.
The changes will benefit all Brazilians, but especially the poorest, whose consumption is currently taxed more than that of the wealthiest. Additionally, the new model will bring more transparency. Citizens will finally know how much they pay in taxes and will be able to demand that their governments use that money wisely.
The reform establishes a transition period for tax unification. The idea is for the period to last seven years, from 2026 to 2032. In 2033, the current taxes will be abolished, and only the unified system will apply.
Source: AP and Gov.BR