What can we expect from the Brazilian Tax Reform

By Trícia Braga is Content Director of Avalara, company that offers the most complete cloud tax solution in Brazil

With the transition of Government at the beginning of this year, much has been said about the possible tax changes that the Federal Government will propose in order to increase revenues. It is not recent that the Executive and Legislative Powers discuss legal texts to implement a tax reform, more than necessary nowadays. The fiscal deficit experienced by Brazil, which has worsened in recent years, shows in itself a serious mismatch between revenues collected and monthly public expenditures. In this way, the increase of collection is mandatory for the success of the current Government.

But this theme is not so simple. The great challenge of a tax reform will be to ally the interests of the three parts that compose the tax collection in Brazil: (1) taxpayers, who cannot stand the high tax burden imposed in Brazil, around 36% of GDP; (2) the Federal Government, which needs to increase revenues, without, however, making a real increase in the tax burden, since this was one of the main proposals of the current President's Government Plan; and (3) states and municipalities that are experiencing a major cash flow problem and cannot give up their current revenues.

Based on this complex scenario that we have, some alternatives are being evaluated by the Federal Government. The intention of the Government is to accelerate the social security reform, which is treated as a matter of urgency, and then to submit the text of the tax reform to the National Congress. There is no specific format defined and its elaboration will necessarily be built by the three parties above: Federal Government, Taxpayers, States and Municipalities.

Analyzing the formal pronouncements of the current Government, we can already have a clear vision: the tax reform will undoubtedly simplify the way that the collection is made and the unification of some taxes. The single tax is unfeasible for the Brazilian scenario today, but the unification of certain taxes will bring great advantage to the public coffers and will be well evaluated by the taxpayers if there is a direct reduction of the daily procedures that guide the collection of the taxes.

In addition, we have other points relevant to this issue of tax reform: the fact that there is in progress, in the National Congress, a Proposal for Constitutional Amendment No. 293/2004, already approved by the Special Committee of the Chamber of Deputies, and an initiative already prepared by the previous Government regarding the unification of PIS and COFINS. These points should be analyzed by the Government in conjunction with the other alternatives already mentioned by the current Minister of Finance, so that the reform is as assertive as possible.

Given this scenario, we cannot predict what the exact context will be for the tax reform. However, we can ensure that it is much closer than it has been in previous attempts and will certainly bring about changes that will impact the day-to-day lives of individuals and companies. Thus, taxpayers should be aware of the legal changes that will occur from now on, and already try to anticipate the impact that possible adjustments will bring on their fiscal routine.