For the first time in decades, the current Brazilian government is taking actual steps to radically improve the Brazilian tax system. There are two Bills that will be backed by the government in the Congress (PEC 45/2019 and PEC 110/2019). Under these Bills:
- all value-added taxes (Federal, State and Municipal) will be changed into a single value-added tax, with a credit system, called Tax Over Goods and Services (“Imposto Sobre Bens e Serviços” or “IBS”);
- IBS will apply over all goods, services and rights supplied (although PEC 110/2019 opens the door for exceptions for certain goods and services, such as food and medical drugs, it is the Federal government’s intention to have no exceptions);
- there will be a single IBS rate (estimated to be about 25%);
- IBS will be charged only at the destination (rather than at the source);
- an excise tax (called “imposto seletivo”) will be created for certain products (such as tobacco-based products, alcoholic drinks and perhaps even sugary products);
- the overall tax burden on consumption is to be maintained and eventually reduced.
Recently, a senior member of the Federal Ministry for Economics stated that the government’s preference is for the Australian and New Zealand GST systems. The government is of the view that the Australian and New Zealand systems are world leading in consumption taxation and they should be preferred over the European VAT system.
The Minister for the Economy (Paulo Guedes, a University of Chicago graduate) has made tax reform a main priority for 2020, with consumption tax changes to be dealt with first and finalised by mid-year.
By bringing Brazil’s tax system closer in line with Australia’s and New Zealand’s GST systems would be a major leap forward in terms of improving Brazil’s business environment. Greater tax simplicity is likely to have a direct effect on Brazil’s economic growth and attractiveness as a foreign investment destination.
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Last modified: March 11, 2020