Basic Text of Tax Reform in Brazil Approved
On July 10, the House of Representatives passed the core text of the first Brazilian Tax Reform regulation, which is now to be approved by the Senate.
The tax reform is designed to streamline the tax system by consolidating several existing taxes into fewer, simpler consumption taxes, making the system more efficient and fair. The goal is to create a tax environment that supports business growth and long-term economic stability. The changes will be introduced in stages, so their full impact will be realized gradually over time.
The main points of the tax reform are:
- Beef, chicken, and salt are tax-exempt in the basic food category, benefiting low-income families.
- The reform introduces three new consumption taxes (IBS, CBS, and Selective Tax), replacing five existing taxes (PIS, Cofins, IPI, ICMS, and ISS).
- Tax adjustments will affect products such as medicines, electricity, and food, with a standard VAT rate of 26.5%.
- The new tax system aims to maintain the overall tax burden, capping it at 26.5% of product prices. It will also eliminate cumulative taxation to reduce production costs and improve efficiency.
- Rules are established for a cashback system for domestic expenses like electricity and gas, starting in 2027 for CBS and 2029 for IBS, along with reduced tax rates for certain professions and a Selective Tax on environmentally harmful products.
The 45-day deadline for processing, requested by the President with urgency, will begin once PLP 68/2024 is officially introduced in the Plenary, expected to occur in August.
The Brazilian government aims to implement the tax reform by 2033. The plan outlines that the reform will be regulated between 2024 and 2025, with the transition from current taxes to the VAT system starting in 2026.
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