After 40 years of discussion in Brazil, the tax reform was finally approved in two rounds by the Chamber of Deputies on Friday, December 15th. The Proposed Constitutional Amendment (PEC) 45/2019 will now move forward for promulgation.
Minister of Finance, Fernando Haddad, expressed, “Brazil has matured and understands the necessity to address this agenda, the most significant of reforms, as it organizes the productive system, aligning Brazil with the most modern approaches worldwide. Based on discussions with senators, I believe the base text approved in the Chamber will be promulgated yet this year,” following the first-round approval on Friday.
Earlier this year, the PEC, which aims to update the Brazilian tax system, had already received approval from the House in July. However, as the Senate introduced modifications, a fresh review of the reform was required by the deputies.
Last Friday, on the 15th of December, the text passed through two rounds of approval by the deputies. The first round witnessed a vote of 371 in favor and 121 against. In the subsequent round, the tally was 365 in favor and 118 against.
The Brazilian Tax Reform strive for a simplification of the current Brazilian Tax System. The proposal replaces five extremely dysfunctional taxes—PIS, Cofins, ICMS, ISS, and IPI—with a dual International VAT, comprising the Contribution on Goods and Services (CBS) at the federal level, and the Goods and Services Tax (IBS) at the subnational (state and municipal) levels.
The tax system will significantly streamline as the reform reduces the number of taxes, establishing harmonized rules for CBS and IBS applicable across the entire national territory.
It is foreseeable that the Tax Reform will benefit all Brazilians, especially the underprivileged, whose consumption is currently more taxed than that of those in better financial conditions. Additionally, the new model promises enhanced transparency, for citizens will have access to the extent of their tax contributions and will be able to demand accountable use of these funds by their governing bodies.
The PEC sets a transition period for tax unification, spanning seven years from 2026 to 2032. Starting in 2033, the current taxes will be phased out, and unification will take effect.
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