Brazil’s tax reform bill: dual VAT, welfare exemptions, and a green tax

Center-right Senator Roberto Rocha released his report this afternoon on the tax reform bill under discussion in Brazil’s Congress. Details of the legislation show the creation of a “dual” value-added tax system unifying federal and local levies into two different VATs. 

That the report was issued today was significant, as October 5 marks the 33rd anniversary of Brazil’s democratic Constitution — a landmark alluded to by senators.

The federal VAT — which would be known as the “contribution on goods and services,” or CBS in its Portuguese acronym — would replace federal social security taxes PIS and Cofins. The infra-national VAT — “goods and services tax,” or IBS — would merge state-level and municipal-level taxes (ICMS and ISS) into a single levy on commerce and services.

Low-income citizens signed up to federal welfare programs would be virtually exempt from consumption taxes thanks to a new rebate system that would ensure these families receive money back from the government. 

Currently, the basic basket of essential food products is already duty-free, but Mr. Rocha argues the exemption is ineffective, as...