Brazil Contemplating Tax Reform in 2019

The Brazilian Congress is once again considering a series of tax reforms aimed at simplifying its incredibly complicated indirect tax system. The primary proposal (known as PEC 293) proposes to replace the following taxes with a nationwide VAT.
 
1. ICMS – state-level VAT
2. IPI – federal tax on industrialized products
3. ISS – municipal tax on services 
4. PIS and COFINS – federal social taxes 
 
This reform also would eliminate the Tax on Financial Transactions (IOF) which would be substituted by a more narrowly targeted excise tax. 
 
The VAT rate under this proposal has not been specified, but rather be left to the incoming president. 
 
In Brazil, there is a surprising level of agreement that the current indirect tax system is untenable (some would call it crazy!). There is also broad based support for adopting a national VAT. However, a change of this magnitude will not be easy. The term “PEC” stands for Proposal of Constitutional Amendment, meaning that a change of this size and scope will require modifying the federal constitution. Further, eliminating local taxes requires the federal, state and local governments reach a consensus on revenue sharing. The challenge of coaxing local governments to give up their tax sovereignty when coupled with electoral intrigue, will make passing sweeping tax reform a tall order. 

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Author

Ramón Frias

Ramón is a Tax Counsel on the Regulatory Analysis team at Sovos. He is licensed to practice law in the Dominican Republic and is a member of the Dominican Bar Association. He has a Certificate Degree from Harvard University as well as a J.D. from the Universidad Autonoma de Santo Domingo. Ramon has written a number of essays about tax administration and has won the first prize in the international essays contest sponsored by the Inter American Center of Tax Administrations (CIAT). Prior to joining Sovos, Ramon worked for more than 10 years in the Department of Revenue of the Dominican Republic where he served as Deputy Director. He is proficient in French and Spanish.
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