Economists and tax experts agree that even if the tax reform approved by Brazil’s lower house of Congress this week is not perfect, it will have a transformative impact on the country’s economy in the long run. It may seem strange to be so optimistic about something that won’t start producing results for another three years, but that’s exactly the feeling.
State of play. Despite the dozens of exceptions, some of which were added at the 25th hour, the core of the proposal remained intact: five consumption taxes — IPI (on manufactured goods), ISS (services), ICMS (goods and services), and PIS and Cofins (social security contributions) — will be merged into two value-added taxes, called CBS (federal) and IBS (local), within ten years.
- The Senate will examine the proposal in the second half of the year. Any changes, and there are likely to be some, will require the House to take another look. As a constitutional amendment, the tax reform requires consensus between the two legislative houses.
Win-win. If approved, the reform will have its first test phase in 2026, when the PIS-Cofins would be replaced by a test rate of 0.9 percent and the ISS and ICMS by a rate of 0.1 percent. The following year, the CBS would come...
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