It’s a belief that adequate tax reform must consider economic growth, job creation, greater competitiveness of companies, products, and services, increased investments, and a reduction in the disparity between the richest and poorest in relation to their power of purchase.

Additionally, tax reform needs to stimulate entrepreneurship, foreign investment, and competition between companies, increase the country's participation in international trade, and reduce tax bureaucracy and tax evasion. On the other hand, the Brazilian state needs to be more efficient so that it can promote the reduction of the tax burden and, at the same time, provide society with public services of greater quality and scope.

There are also several reasons why the tax reform contributes to accelerating the country's growth potential. Some important measures would result in an ideal model, as shown in the Tax Reform Booklet of the Ministry of Finance (2008), which highlights:

• simplification and reduction of bureaucracy in the tax system, significantly reducing the number of taxes and the cost of complying with tax returns by companies;

• increased formality, distributing the tax burden more equitably: those who pay taxes today will pay less, and those who do not comply with their tax obligations will start contributing;

• elimination of distortions in the tax structure, reducing the cost of investments and exports;

• elimination of the fiscal war, resulting in increased investments and economic efficiency;

• important advances in the exemption policy, reducing the tax cost for formal companies for consumers and increasing the country's competitiveness;

• the improvement of the regional development policy, introducing more efficient mechanisms for the development of the poorest regions.

In this step, it is known tax reform in Brazil has been under discussion in Congress for over 30 years. The first time that an attempt was made was in the drafting of the 1988 Constitution, focusing on uniting the consumption taxes in one 'Value Added Tax.’ The idea in that period was the same: try to reduce the judicial conflicts as well as the burdens on companies that operate in Brazil.

On July 6th, the Chamber of Deputies passed a proposed amendment of the constitution (PEC) of Tax Reform that unifies five taxes on consumption, Social Contributions (PIS and Cofins), ISS (Service Tax), ICMS (State VAT) and IPI (Excise Tax), creating CBS (goods and services contributions – federal), IBS (goods and services tax – states and municipalities)

"It’s a belief that adequate tax reform must consider economic growth, job creation, greater competitiveness of companies, products, and services, increased investments, and a reduction in the disparity between the richest and poorest in relation to their power of purchase"

This is just one step in order to have approved the tax reform in Brazil. Now the amendment was referred to Federal Senate in order to be reviewed and maybe modified. If there are significant changes, the text could return to the Chamber of Deputies to be remade.

In what it implies uncertainties to taxpayers?

• Legislative Process and Opening Points: Several companies in Brazil have already tried to evaluate its impacts - whether in its tax burden, pricing, cash flow, or business model - in the next years, following the actual document, with the first changes occurring in 2026. However, the document is initial, opening the possibility to 58 (fifty-eight) complementary laws to be implemented and join the original document, besides the changes that could be done by Federal Senate in the next few days. It means that besides the Federal Senate approval, there will be rules to be established during the implementation that involves the rates to be applied at different levels, as well as the way to Brazilian Internal Revenue Service performs its activity.

• Federative Council: In order to distribute to states and municipalities the amount of IBS collected, the proposal creates a federative council with technical, administrative, budgetary, and financial independence. The text of the PEC provides that the 26 states and the Federal District will have one representative each, while the municipalities and the DF itself will be represented by another 27 members - 14 elected based on the equal votes of these entities and 13 based on the votes weighted by the respective populations.

• Unfortunately, it is not clear the activities of this council and how the distribution will work in order to avoid inequality regarded to the tax revenues received as well as avoiding discussions among the states and municipalities in a new ‘tax War’, as happened with State VAT years ago.

• Tax Litigation: The Federative Council will be responsible for tax litigation issues between the state and municipalities and the taxpayer. The idea of IBS is to reduce tax litigation significantly. However, opening points in tax rules have the opposite effect, increasing discussion themes. Also, it is not clear how will be the role of this council related to discussion before IBS, with state VAT and service tax at the administrative level. 

• Tax Returns: Actually, in Brazil, there are several monthly tax returns transmitted to tax authorities in order to guarantee the amount calculated and paid for each tax. It spent hours of internal teams and costs with tools in order to maintain it in conformity. What is not clear until now is if this point will be effectively simplified. Will there be other tax returns? In this case, at the different levels, the control will not be closer to the taxpayer.

As we can see, Brazil has sown the path of tax reform but must clarify several points in order to allow taxpayers and, why not, the own tax administration to be aware of the new game rules, helping to improve knowledge and investments in the country.

Guilherme Iacovino is an indirect tax manager at Decolar.com, having worked in the consumer and technology segment in companies such as Carrefour, Sephora, and Mercado Livre.

The opinion pointed out does not reflect the opinion of Decolar.com