Brazil Introduces Tax Simplification Proposal

On July 21, the Brazilian Minister of Economy, Paulo Guedes, personally presented the text containing the first part of the proposal for the long-awaited tax reform to the National Congress. A major tax simplification was part of the presidential campaign promise by the current president of Brazil, Jair Bolsonaro, and now the first step has been proposed by his Cabinet.

One of the key points of the text presented to Congress is the unification of two federal indirect taxes - Program of Social Integration and Contribution for the Financing of Social Security (PIS and COFINS) - in a new tax called the Contribution of Goods and Services (CBS), with a proposed rate of 12%. This would result in a small increase of the tax burden since the current rates add up to 9.25%.

The proposal also stipulates that digital platforms should collect CBS when intermediating operations in which the seller does not issue electronic invoices, such as sales sites between individuals.

To facilitate the processing and approval, the text was delivered as a Project of Law, which requires the approval through a mere simple majority in the Chamber and the Senate. This could result in a significantly faster process than the other proposals already presented, as proposed amendments to the Federal Constitution require a three-fifths majority vote by Congress.

The main difference between the proposal presented in July and others previously presented is that it does not propose the unification of state and municipal level taxes - Imposto Sobre Operações Relativas à Circulação de Mercadorias e Serviços de Transporte Interestadual de Intermunicipal e de Comunicações and Brazilian Municipal Service Tax (ICMS and ISS). The government's option for phasing the reform was to focus on something that already has a consensus and leave more controversial issues for a later date. According to the minister advisers, the second part of the reform will be presented sometime in August.

Guedes and his team expect to be able to implement the simplified tax structure within six months from the law publication, but for now, we must await the result of the appropriation of all the proposals that have already been presented by government authorities. As always, we’ll keep you updated as more information becomes available.