Tax reform is enacted in a historic session by the National Congress

The National Congress enacted, this Wednesday (20), the tax reform, after more than three decades of discussion. The amendment was signed by the presidents of the Senate, Rodrigo Pacheco (PSD-MG), and the Chamber, Arthur Lira (PP-AL) and was also attended by the President of the Republic Luís Inácio Lula da Silva (PT), in a session historical.

The promulgation consolidates the approval of the first tax reform since redemocratization, which will put an end to the current tax system, created in the 1960s. The approved text replaces five taxes on consumption and places Brazil on the map of countries that adopt a VAT system ( Value Added Tax).

The ceremony was also attended by the vice-president of the Republic, Geraldo Alckmin (PSB), the Minister of Finance, Fernando Haddad, as well as the president of the STF (Supreme Federal Court), Luís Roberto Barroso. This fourth session also marks the first step in a long journey towards the effective implementation of the new model, which will begin in 2026 and be completed at the beginning of 2033.

From now on, the Executive will have up to 180 days to send the complementary bills that will regulate the reform — one of Congress’ priorities next year. According to Ministry of Finance accounts, the base rate is estimated at 27.5%.

The government is working on sending at least three proposals to, among other topics, create a management committee made up of states and municipalities and define rules and rates for new taxes, including specific regimes for sectors that will be outside the scope of VAT.

The approval of a new tax system represents a victory for the Lula government, and gives Pacheco and Lira an emblematic brand for their administrations.

Since the beginning of the year, Haddad placed the reform as one of the pillars of the economic agenda and created an extraordinary secretariat focused on the issue, headed by Bernard Appy —technical formulator of the initial version of PEC 45, one of the bases for the approved reform.

The session also had the participation of rapporteurs from each House, federal deputy Aguinaldo Ribeiro (PP-PB) and senator Eduardo Braga (MDB-AM), in addition to the president of the MDB, deputy Baleia Rossi (SP), who presented the PEC and formalized Appy’s proposal in Congress.

Historic

The tax reform was approved in the Chamber in July by 382 votes to 118, with the support of the two large blocs of the House, which together bring together acronyms such as União Brasil, PSD, MDB, PSDB, PSB, PP and Republicans, in addition to the government bloc, which includes PT, PC do B and PV. Former president Jair Bolsonaro tried to block the proposal with the senators and ensured that his party, the PL, advised against it in both Houses. In the Senate, the Republicans, the Novo and part of Podemos joined the PL to vote against the PEC. In the Senate, the reform was approved last month with a tight score of 53 to 24 — exposing the climate of tension that marked the session and threatened to bury the PEC. On Friday (15), the Chamber validated the Senate text by 371 to 121.

The approved reform provides for the merger of PIS, Cofins and IPI (federal taxes), ICMS (state) and ISS (municipal) into a dual VAT. One portion of the rate will be administered by the federal government through CBS (Contribution on Goods and Services), and the other, by states and municipalities through IBS (Tax on Goods and Services).

A Selective Tax will also be created on goods and services considered harmful to health (such as cigarettes and alcoholic beverages) or the environment, with the exception of those produced in the Manaus Free Trade Zone.

The implementation of the new taxes will begin in 2026, with a test rate of 0.9% for CBS and 0.1% for IBS.

In 2027, PIS and Cofins will be completely abolished and replaced by the new CBS reference rate. The IPI rates would also be reset to zero for the Selective Tax to come into force, with the exception of goods produced in the Free Zone.

The migration of state and municipal taxes to the new IBS will be more gradual, given the need to provide legal certainty to benefits already granted under the current system. Therefore, ICMS and ISS will only be completely abolished in 2033. To win the dispute between the states, Haddad also needed to open the Union’s coffers and inject resources into a fund to finance new regional incentives, which will reach R$60 billion from 2043.

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