Brazil’s promised tax overhaul is more ‘tweak’ than ‘reform’

During the 2018 presidential campaign, Paulo Guedes made markets salivate with the promise of “radical liberal reforms” were he to become the country’s next Economy Minister. Playing the role of Jair Bolsonaro’s economic tsar, he pledged to completely overhaul the complex tax system and make Brazil a more business-friendly country.

However, these changes were not nearly as swift as Brazilian markets had hoped. A whole 18 months after taking office as Economy Minister, Mr. Guedes finally presented his tax reform bill this week — but calling it a ‘reform’ is a stretch, coming across more like a tweak that, while being important, is a lot less than was expected.

The bill he submitted to Congress on Tuesday includes a single reform proposal: merging social contributions on consumer goods PIS and Cofins into a single 12-percent levy — to be called “Social Contribution on Goods and Services.” And even this solitary change was not exempt from criticism, with some economists believing the rate is too high and that it will be particularly cumbersome to the services sector, potentially creating inflationary pressures on consumers.

Even Congress — typically averse to reform — considered the proposal “not bold enough.” Indeed, lawmakers had begun discussions last year on merging multiple federal taxes — including PIS and Cofins — with other state- and municipal-level taxes. But Mr. Guedes says the federal government cannot interfere with taxation at those levels.

Despite the criticism surrounding the administration’s ‘lackluster’ proposal, it is important to highlight that the...