BRASILIA, (Reuters) – Brazil’s Senate approved yesterday a historic reform on consumption taxes, but the effective implementation depends on subsequent bills, over an extended transition period.
The reform, previously approved in the lower house, passed two rounds of voting with 53 votes in favour and 24 against.
Since the text amending the constitution was modified in the Senate, it must be approved again in the lower house before being enacted into law.
The reform is regarded as a cornerstone of President Luiz Inacio Lula da Silva’s plan to boost productivity and the potential growth of Latin America’s largest economy. Brazil’s consumption tax system is seen as exceedingly complex, and compliance with existing rules entails high costs for businesses.
After the first round of voting, Finance Minister Fernando Haddad praised the approval.
“I believe the tax reform can be enacted this year, even though it’s going back to the lower house,” he told reporters.
The proposal aims to consolidate five existing levies into a value-added tax (VAT) with distinct federal and regional rates, to be determined later through complementary laws. The new taxes will be fully implemented only in 2033.
The proposal also introduces a selective tax designed to levy products considered harmful to the environment and health.
To garner consensus around the bill, lawmakers engaged in negotiations to establish different and less burdensome regimes for various sectors, a list that expanded in the Senate.
As a result, the Finance Ministry estimated a general VAT rate of up to 27.5% to offset the exceptions.
Senators also increased a compensation fund maintained by the federal government that will be used to mitigate disparities in tax collection between states, with a maximum annual disbursement of 60 billion reais.
The reform shifts the tax base from the point of production to the point of consumption over a 50-year transition period starting in 2029, a change expected to favor Brazil’s wealthier and more populous states.
