As early as this week, the Federal Senate of the Brazilian National Congress may vote a potentially historic tax reform, revamping a tax system that has been in place since the 1960s and has increased in complexity, inefficiency, and compliance cost over the years.

The reform is a draft constitutional amendment (PEC) that requires a favorable vote by at least three-fifths of the members of each chamber of Congress in two rounds of voting (308 in the House of Deputies and 49 in the Senate).

The House approved the amendment on July 7, 2023, with 382 and 370 votes in the first and second rounds, respectively.  The Senate must now vote on the amendment.

Pressure Politics in the Senate

The reform is largely focused on consumption taxes, creating a full-fledged value-added tax (VAT) for Brazil, although it also includes changes in property taxes.  Its outline, political economy, and approval process was discussed in this blog post.

The Senate rapporteur’s report includes key changes to the House-approved draft text.

The Senate is under pressure to establish a tax ceiling for the VAT.  President Luiz Inácio Lula da Silva’s administration is pursuing a strategy to increase government revenue in order to achieve the country’s ambitious new fiscal framework goals.  Private sector groups are concerned the administration might push for a VAT rate higher than the existing tax level, increasing the burden on companies.  They are also concerned about the scope of the proposed Selective Tax on goods and services with negative health and environmental externalities.  The opposition in Congress in echoing these fears.…

Continue Reading Key Vote on Tax Reform Expected in Brazil’s Senate