Brazilian Representatives Approve Regulation of Tax Reform with a Cap of 26.5% on Tax
Meats and cheeses were included at the last minute in the basic food basket; the text now goes to the Senate
Almost seven months after the promulgation of the constitutional amendment for tax reform, the plenary of the Chamber of Deputies approved on Wednesday (10) the bill that regulates the new tax system. The initiative details the rules for the functioning of the new dual VAT (Value Added Tax), including which goods or services will have a reduced tax burden.
These definitions are crucial for calibrating the final rates of the federal CBS (Contribution on Goods and Services) and the IBS (Tax on Goods and Services) of states and municipalities. The Chamber decided to include a cap in the text to ensure that the rate does not exceed the 26.5% estimated by the Ministry of Finance when the proposal was submitted in April. Even so, the Brazilian VAT is expected to be among the highest in the world. Currently, the highest is Hungary’s, at 27%.
The inclusion of this cap means that if Congress wants to expand or grant any exemption or benefit, it will need to cut from another area to avoid an increase in the standard rate, paid on most goods and services consumed by Brazilians.
This mechanism would be valid from 2033, when the new CBS (Contribution on Goods and Services) and IBS (Tax on Goods and Services) are fully operational. The regulation text was approved by 336 votes to 142, a wide margin compared to the 257 votes needed for a supplementary bill to advance. There were also two abstentions. The bill now goes to the Senate, where it will need the support of 41 senators.