Brazil’s lower house of Congress has approved a tax reform bill that will restructure the country’s complex consumption taxes. The move is being hailed as a great victory by President Luiz Inacio Lula da Silva and is considered a key step in his plan to boost economic growth.
The tax reform bill, which has been attempted by various administrations in the past without success, aims to merge five existing levies into a value-added tax (VAT) with separate federal and regional rates. The reform will be implemented over eight years, starting in 2026. Additionally, the bill shifts the tax basis from where goods are produced to where they are consumed over a 50-year transition period, beginning in 2029.
The approved proposal is expected to benefit Brazil’s wealthier and more populous states. However, it may face opposition and calls for broader compensation measures in the Senate, where state governors hold greater influence.
The approval of the tax reform bill has had a positive impact on the markets, with Brazil’s real strengthening against the dollar and the benchmark stock index jumping.
Economists at JPMorgan have stated that although the transition period will result in continued complexity, the long-term effects of the reform are expected to enhance productivity and stimulate higher growth.
The lower house passed the bill with a wide margin, with 382 votes in favor and 118 against in the first round and 375 votes in favor and 113 against in the second round. Finance Minister Fernando Haddad expressed his belief that the reform will not encounter significant opposition in the Senate, as he has already received calls from senators praising the approved text.
The approval of the tax reform bill is a major win for lower house Speaker Arthur Lira, who strongly supported the project. It is also a significant defeat for former President Jair Bolsonaro, who campaigned against the reform. Bolsonaro’s efforts to oppose the bill were unsuccessful, as even some members of his own party voted in favor of it.
Overall, the approval of the tax reform bill marks an important milestone for Brazil and its efforts to stimulate economic growth. While challenges may lie ahead in the Senate, the government remains optimistic about the future and the positive impact the reform will have on the country’s economy.
