Brazilian Finance Minister Presents Tax Reform Regulation Bill to Congress

Brazil proposes sweeping tax reform to simplify its complex system, boost competitiveness, and address inequality through a global minimum tax on billionaires.

Nimrah Khatoon
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Brazilian Finance Minister Presents Tax Reform Regulation Bill to Congress

Brazilian Finance Minister Presents Tax Reform Regulation Bill to Congress

On April 25, 2024, Brazilian Finance Minister Fernando Haddad presented a tax reform regulation bill to Congress that aims to simplify the country's complex tax system. The bill proposes consolidating five existing consumption taxes into a dual value-added tax (VAT) system, which is expected to come into force by 2033.

The key points of the proposal include preserving the competitiveness and tax exemption mechanisms for the Manaus Free Zone and Free Trade Areas. Imports of raw materials and other industrialized products produced in Brazil will be exempt from the new taxes, known as IBS and CBS. The rates of these taxes will be reduced to zero when an industry in the Zone supplies intermediate goods to another industry in the area, and companies buying from another firm in the Zone will have presumed IBS credit.

Some products are excluded from the list of exemption beneficiaries, while the Free Trade Areas will have IBS and CBS suspended on imports of inputs by beneficiary industries. The goal of the tax reform is to simplify the billing system in Brazil and curb evasion and fraud.

Why this matters: Brazil's complex tax system has long been a hindrance to economic growth and competitiveness. The proposed tax reform aims to streamline the system, reduce bureaucracy, and create a more business-friendly environment. If successful, it could open the door for increased investment and job creation in Latin America's largest economy.

Finance Minister Haddad stated that the current consumption tax rate is around 34%, and with the reform and its regulation, the expectation is that the system will become digital, which could open the door for this rate to be reduced even with the foreseen exceptions for some sectors. The government plans to disclose more details of the bill in a press conference on Thursday morning.

The tax reform is a key element of President Luiz Inacio Lula da Silva's strategy to promote growth in Brazil. It complements ongoing negotiations on a global minimum corporate tax and digital economy taxation. Ministers from Germany, South Africa, and Spain have also stressed the importance of progressive tax policies and international cooperation in addressing inequality and financing sustainable development.

As part of Brazil's G20 presidency priority to fight hunger, poverty, and inequality, the bill also proposes a global minimum tax on billionaires, which would be a 2% levy on the wealth of the super-rich. The goal is to increase tax fairness, generate revenue for public goods, and tackle inequality.

Key Takeaways

  • Brazil proposes tax reform to simplify the complex system by 2033.
  • Manaus Free Zone and Free Trade Areas to maintain tax benefits.
  • The aim is to reduce bureaucracy, curb evasion, and boost competitiveness.
  • Proposed global minimum tax on billionaires to address inequality.
  • Tax reform is a key element of Lula's strategy to promote growth.