Brazil’s Chamber of Deputies has approved a major overhaul of the country’s complicated tax system, in a major victory for President Luiz Inácio Lula da Silva, who said the new rules will stimulate investment and growth in the country.
The long-awaited tax 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 greater than 3 to 1.
“After more than 40 years, the country will have a modern, lean and efficient tax system that will change the country’s economy,” 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 the other to be divided between states and municipalities.
Under 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, frequently updated rates.
The system creates differences in interpretation, leading to time-consuming 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 is currently taxed more than that of the richest. Furthermore, 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 make good use of this money.
The reform establishes a transition period for tax unification. The idea is that the period will last seven years, from 2026 to 2032. In 2033 current taxes will be abolished and only the unified system will be valid.
Source: AP and Gov.BR