The Chamber of Deputies of Brazil approved a major reform of the country’s complicated tax system, a significant victory for President Luiz Inácio Lula da Silva, who stated that the new rules will stimulate investments and the country’s growth.
The long-awaited fiscal reform aims to simplify the system, widely considered excessively burdensome for both individuals and businesses, and 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 – had to be voted on again after the Senate made changes to the text before sending it back 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 one that could be approved.”
What changes?
The tax reform will merge the five main rates (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 over 5,500 municipalities imposing their own rates, often updated.
The system generates differences in interpretation, leading to lengthy lawsuits 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 today is taxed more than that of the wealthiest. Furthermore, the new model will bring more transparency. Citizens will finally know how much they pay in taxes and will be able to hold their leaders accountable for the proper use of that money.
The reform establishes a transition period for the unification of taxes. The idea is that the period will last seven years, from 2026 to 2032. Starting in 2033, the current taxes will be abolished, and only the unification will take effect.
Source: AP and Gov.Br