Brazil’s tax reform wins approval in lower house of Congress

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

Fernando Haddad, finance minister, hailed the successful votes on the legislation to simplify a web of duties and levies. Attempts at tax reform have for years bedevilled lawmakers and officials.

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

The legislation, which will amend the constitution, now faces two more votes in the Senate. If approved in full, the tax overhaul would mark an important political victory for leftwing president Luiz Inácio Lula da Silva, who since taking office in January has had to contend with a legislature dominated by the opposition.

It could also boost growth, adding as much as 2.39 per cent to gross domestic product over the next eight years, according to estimates from the Institute for Applied Economic Research.

“Lasting growth can only happen with tax reform,” said Simone Tebet, government minister for planning and the budget. “It is the only silver bullet we have.”

Latin America’s largest economy has for decades been hampered by the complexity and opacity of its tax regime. A midsized company in Brazil takes about 1,500 hours to prepare and pay taxes, by far the most in the world, according to the World Bank. By contrast, a US company takes 175 hours and a UK group takes 114 hours.

During the past 34 years, an average of 37 tax rules were changed every day, according to the Brazilian Institute for Planning and Taxation.

The bill before Congress would replace a host of different levies with just two value-added taxes, one federal and the other local. Taxpayers would shift to the new rates between 2026 and 2032. The standard VAT rate is expected to be about 25 per cent.

The reform also proposes ending the system of taxing goods where they are produced and moving to a model where the duties are imposed at the point of consumption over a 50-year transition period.

João Camargo, chair of the Esfera 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 big improvement for the country,” he added.

Political analysts credit the previous rightwing Jair Bolsonaro administration with laying the groundwork to pass the current amendment. Tax reform efforts by previous governments foundered on political lobbying and deeply entrenched interests, typically at the state and municipal levels.