Since taking office in January 2011, President Dilma Rousseff has repeatedly vowed to make
At the moment, tax compliance is time consuming, costly and very complex. According to the World Bank, companies take 2,600 hours per year to prepare, file and pay taxes in
The proposed tax changes comprise at least three areas. First, payroll taxes will be reduced as social security contributions will decline from the current 20% of gross salary to 14%. Secondly, the ICMS tax, a tax on all goods and services, will be harmonized across different states. At present, this tax is levied at the discretion of states. The government is proposing a fixed 4% rate applicable nationwide, to discourage the fiscal competition between states who try to outdo each other by offering tax holidays. Lastly, the reform envisages tax exemptions for domestic industries and exporters.
There is a strong probability that the Rousseff government will succeed in passing this legislation in Congress, although this will require negotiations with Rousseff's coalition partners. Several factors are supportive of Rousseff 's reform efforts. Tax revenue over recent years has been robust, which provides room for tax reduction without endangering government revenues. The significant appreciation of the currency and the danger that this prices Brazilian companies out of foreign markets is acting as an additional incentive for a reduction in corporate taxation. Very few, including the labor unions, dispute that tax reform would boost productivity, generate jobs and assist economic growth. This puts the government in a strong position to get the bill through Congress.
This commentary was provided by specialist intelligence company Exclusive Analysis.