Weekly tax updates 27-10-23

VAT Friday Brazil – Tax Reform (Reforma Tributária)

The reform of tax legislation has been debated in Brazil for at least two decades. Conversely, on July 7, 2023, the Chamber of Deputies approved the Substitute for Constitutional Amendment Proposal (PEC) No. 45/2019, which deals with the Consumption Tax Reform.

The Tax Reform aims for simplicity in tax collection, a possibility of reduction in consumption-related taxes, and uniformity throughout the country. To achieve this, there will be several changes to the current tax system. The main innovation is linked to the fact that some current taxes will be abolished to create three new taxes, including a dual-format Value Added Tax (VAT).

The text of the PEC 45 proposes the replacement of the current IPI, PIS, COFINS, ICMS, and ISS taxes with a Dual VAT composed of the Contribution on Goods and Services (CBS) and a Tax on Goods and Services (IBS), in addition to a Selective Tax (IS).

The reform also address a progressive transition for the new model to be at full effect.

Take away
The reform will still go through the Senate for evaluation and voting. If the text is approved, it will be enacted as a constitutional amendment in a session of the National Congress.

The full adoption of the new consumption-based tax system is scheduled for 2033.

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