Brazil’s House kicks off tax reform works

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The heads of a House working group will meet with Tax Reform Secretary Bernard Appy today to kick-start discussions on tax reform.

Congressmen Reginaldo Lopes, Aguinaldo Ribeiro, and Mauro Benevides Filho will meet Mr. Appy at the Finance Ministry this afternoon. On Tuesday, the working group will hold its first official meeting in the House.

Mr. Appy is one of the intellectual authors of a tax reform proposal presented in 2019 by Congressman Baleia Rossi. After being approved in the Constitution and Justice Committee, the bill stalled and was not taken to a floor vote. Congressman Aguinaldo Ribeiro was this month appointed as the bill’s rapporteur to resume discussions.

The bill proposes to eliminate three federal taxes (IPI, PIS and Cofins), the state-level ICMS and the municipal-level ISS, all levied on consumption.

The value-added IBS tax would be created to replace them, charged on goods and services transactions at the federal, state, and municipal levels. Cities and states would be free to set their own IBS rate, but in each jurisdiction it would be the same for all goods and services. Currently, tax authorities have long lists of tax rates for thousands of different product categories.

Separately, the federal government would institute a selective tax on products such as cigarettes and alcoholic beverages.

House Speaker Arthur Lira elected the tax reform as a priority for his two-year term, and pledged to try to approve a “possible” revision of the tax code, despite it being a contentious issue.

The proposal will be discussed in a working group rather than a formal committee. This format has been extensively employed since Mr. Lira took over the speakership in 2021, as it bypasses rules demanding that the composition of committees follow the proportion of party benches.

Congressman Marcel van Hattem of the libertarian Novo party criticized the working group, which includes three members from the northern Amazonas state and none from the three southern states.

The Manaus Duty-Free Zone, located in the state capital of Amazonas, is Brazil’s only free-trade area. It was set up in 1967 by the military dictatorship to promote industrial development in the heart of the Amazon by luring companies with tax-free policies. The major presence of Amazonas lawmakers implies that the zone’s benefits will be left untouched by the tax reform.

In 2021, the House approved an unrelated tax reform bill raising the income tax threshold to BRL 2,500, while also charging taxes on dividends. However, the bill has stalled in the Senate.

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