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What to expect from the tax reform in Brazil

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A series of important changes are imminent

Glaucia Lauletta Frascino of Mattos Filho provides thought provoking discussion on the tax reforms being tabled in Brazil.

There is no doubt that we are living in a unique moment in the history of Brazil's tax system. Discussion on the topic has become a priority of civil society, which, in itself, is excellent news. There has long been talk of the need for tax reform in the country, but there have been few times when politically viable projects have evolved to become the subject of a broader debate, spurred on by the executive branch and, especially, the legislative branch, as we see happening now.

It is equally unquestionable that the attempt to simplify a chaotic tax system is absolutely praiseworthy and deserves to be taken seriously, especially when that system has as its backdrop a massive list of taxes, considerable uncertainty in the interpretation of its rules and, as a result, one of the biggest litigation sources (perhaps the biggest) in the world.

However, some questions are equally relevant throughout this discussion: what tax reform are we talking about? What are the constitutional limits of the reform? Also, what other values should go hand-in-hand with tax simplification so as to improve the country?



Of the various reform projects available, what appears to be the most viable one is the subject of Constitutional Amendment 45 (PEC 45), which is in progress before the Chamber of Deputies. The main change that PEC 45 would introduce would be a single tax – the tax on goods and services (Imposto sobre Bens e Serviços, or IBS) – whose most striking feature is a single rate within the scope of states and cities for all operations. The IBS would result from the unification of the existing federal, state and municipal taxes, specifically: 

  • The social integration programme, or PIS (Programa de Integração Social);

  • The contribution for social security financing, or COFINS (Contribuição para o Financiamento da Seguridade Social); 

  • The tax on industrialised products, or IPI (Imposto sobre Produtos Industrializados);

  • The tax on sales and services, or ICMS, which applies to the movement of goods, transportation, communication services, and other general supplying of goods (Imposto Sobre Operações Relativas à Circulação de Mercadorias e Serviços de Transporte Interestadual de Intermunicipal e de Comunicações); and

  • The tax on services, or ISS (Imposto Sobre Serviços de Qualquer Natureza).


This project indeed has merits in valuing the simplification of the system and reducing the number of taxes levied on the consumption of goods and services. In addition it intelligently proposes a cultural change to the tax system of the country, with the elimination of tax benefits and the establishment of a single tax rate, so that companies become mere agents of taxes to be effectively paid by those who consume goods and services.


In addition to PEC 45, we have Constitutional Amendment Project 110 (PED 110), underway in the Senate, which proposes the unification of federal taxes only. Finally, there is the possibility of a federal government project, whose main feature would be the creation of a new tax on the movement and transfer of values to finance social security and which would reduce the financial burden on payroll. This would consequently lead to the creation of formal jobs in the country.

It is important to note that constitutional amendments may alter the Constitution, provided they do not affect the so-called entrenchment clauses. Those involve the individual rights and guarantees, such as federalism, which guarantee autonomy for Brazil and its states and municipalities, including in matters of taxation.

That is why no reform, however necessary, justifies breaking the constitutional order, nullifying one of the pillars of the federative system, which is precisely the autonomy of political bodies. Although Brazil and its states and municipalities have not wisely used such autonomy, it would be worse to accept a solution that would involve contempt for the Constitution.


Simplification is essential, and we have a unique opportunity to make it a reality. However, to consider it as an isolated objective, without addressing other topics, is to waste a rare opportunity to mobilise civil society and make taxation in the country a tool of tax justice and social development. Fostering a broad, deep, and definitive debate is the best legacy we can leave for future generations.



Glaucia Lauletta Frascino

T: 55 11 3147 7654

E: glaucia.lauletta@mattosfilho.com.br

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