BRAZIL: Congress approves tax reform regulation bill

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On 17 December Brazil’s lower chamber of congress approved a bill (PLP 68/2024) to create regulations for the implementation of the country’s new system of consumption taxes, which will now proceed to be promulgated by President Luiz Inácio Lula da Silva.

Analysis:

The PLP will add teeth to the constitutional amendment (PEC) approved last year which reformed the tax code. The passage of the tax regulations marks a victory for the economic agenda of the Lula administration as well as for the president of the lower house, Arthur Lira, who will step down from the role at the start of February. The landmark tax reform will likely be remembered as among the most significant pieces of economic legislation passed during Lira’s presidency, and the government expects that the simplification of Brazil’s labyrinthine tax system, with different rates for products and services in each state, will make the country a more appealing prospect for businesses and investors. This boost comes as market confidence in Brazil has been shaken in recent months by factors such as rising inflation and scepticism over the government’s proposed fiscal reforms.  

• The senate approved the PLP last week, having made some changes from the draft bill approved by the lower house in July. Yesterday deputies reversed some of the senate’s changes. For example, the senate removed high-sugar fizzy drinks from the list of items covered by the ‘Imposto Seletivo’ (IS), a levy that aims to disincentivise the consumption of products deemed unhealthy or socially and environmentally harmful, but the lower house reintroduced fizzy drinks to the list.
• The bill passed the house by a vote count of 324-123. Most of the opponents were from right-wing opposition parties such as the Partido Liberal (PL) and Novo. Deputies who voted against the bill argued that the reform has not reduced the tax burden.
• Media commentators have suggested that the tax reform might not immediately benefit the Lula administration, since some of the new taxes will only come into force from 2027 onwards. If the makeup of the legislature changes drastically after the 2026 congressional elections, there could be more amendments to parts of the reform, such as undoing or adding tax reductions or exemptions.

Looking Ahead: In 2025, congress is due to review another bill with more tax regulations (PLP 108/2024). Lira’s most likely successor, Hugo Motta, has not yet announced when he expects to table that bill.

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Articles in this issue:

• PANAMA: Gov’t hails fall in Darién crossings
• COLOMBIA: Political reform bill fails to clear senate
• In brief: Ecuador completes record debt-for-nature swap
• BRAZIL: Congress approves tax reform regulation bill
• In brief: Brazil’s central bank expresses hawkish tone on interest rates
• In brief: El Salvador’s legislature approves 2025 budget
• MEXICO: Former officials arrested over mayor killing
• In brief: Mexico’s Sheinbaum proposes USMCA expansion
• ARGENTINA: Tensions rise with Venezuela over soldier’s arrest
• In brief: Chile cuts interest rate