As I mentioned in my previous post, Brazil, like the rest of the world, has been severely and financially impacted by the global pandemic. It’s expected that the federal government’s deficit will top R$ 866 billion.
Although nothing concrete has been announced, one way the nation can attempt to recoup some of this deficit involves changes to the Brazilian tax and labor landscape.
The federal government could also implement the long-expected Tax Reform, alongside the measures it has already taken in the credit area and in the preservation of income, to maintain jobs and economic activity.
Such measures should not involve the creation or expansion of tax rates, but through the creation of a public calamity tax regime focused on growing employment levels and economic activity, both of which relieve the tax burden on companies and economic agents, and permanently increases general investments. The government is considering legislation for special spending powers to be triggered in the future if public finances are hit by another pandemic.
Promised Tax Reform
Implementing the tax reform promised to the Brazilians could be one of the first topics to be prioritized as the pandemic subsides in order to make the tax system leaner and lessen the tax burden for companies. Once economic confidence is restored, the level of investments may resume, accelerating the generation of jobs that, in turn, will contribute to the revitalization of the Brazilian economy and make the nation more competitive in the global business environment.
The current tax reform proposals being evaluated by the legislature are intended to simplify the collection of consumption taxes and propose the unification of additional taxes. However, this would only serve to change the form of collection.
Incentives for the National Industry
Another important topic to consider involves the possibility of greater incentives to Brazilian manufacturing as a way of generating jobs, including covering the substitution of imports in favor of national production.
Some experts have expressed the expectation of a possible global reduction on the dependence on Chinese industrial production, which would open opportunities for new international agreements and making an industrial policy more favorable for the Brazilian economy.
Payroll Burdens Relief
It is essential that the Brazilian government considers effective alternatives for the reduction of companies' payroll tax when talking about resumption of investments and economic strengthening.
Although the COVID-19 vaccination just started in Brazil (and the expectation is that the vaccination of the Brazilian population will not be completed before the end of 2021), the country has no time to waste in alleviating the economic distress the pandemic has caused. The government is considering legislation for a national state of calamity and special spending powers to be triggered in the future if public finances are hit by another pandemic.
Like many other countries, Brazil was already suffering from economic problems prior to the arrival of COVID-19. The scenario for the post-pandemic world is fraught with uncertainty, but we need to be prepared with solutions that begin to right the previous challenges posed to the economy with the potential added consequences the pandemic will no doubt cause. The ultimate question remains — will we view the pandemic merely as a catastrophe or an opportunity to change how governments can implement tax policy, which can be part of a larger economic recovery effort that not only helps Brazil but also affected countries around the world.
Please remember that the Tax Matters provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information. The views and opinions expressed in Tax Matters are those of the authors and do not necessarily reflect the official policy, position, or opinion of Vertex Inc.