Still too early to celebrate Brazil’s tax reform

Brazilian lawmaking works in mysterious ways. Following decades of failed attempts to reform the country’s byzantine tax system, through several conjunctures of governments’ popularity and competence, the odd combination of a right-wing Congress and a left-wing Executive finally delivered a breakthrough in July. 

The House approved a constitutional amendment that will gradually merge Brazil’s many layered consumption taxes into a single value-added tax. Legal and economic experts are almost unanimous in affirming that, once fully implemented, the new system will boost potential GDP growth and substantially reduce the cost of doing business in the country.

However, waters get muddier when one asks about the rate of this lauded single value-added tax rate. For the longest time, “it depends” was the frustrating yet honest refrain. 

The constitutional amendment proposal voted in the lower House includes a short list of exceptions to the general rule, one that is likely to expand in coming weeks as the Senate starts to discuss the matter. Once that hurdle is cleared and the Constitution is amended, a series of bills will be voted on to give the constitutional skeleton a practical form.

This week, Finance Minister Fernando Haddad delivered...