Brazil’s Minister of the Economy Paulo Guedes announced this week that the country plans to undergo an extensive tax reform with the aim of redistributing revenue to Brazilian states and municipalities.
According to Guedes, this projected initiative is to combine up to five federal taxes into one single VAT and then share the money accrued with Brazil’s 27 states and its many municipalities.
Analysts suggest this single VAT might combine the ICMS collected by the states, the ISS by the municipalities, and the IPI, PIS and Cofins by the central government.
Speaking in front of municipal mayors during the 22nd March to Brasilia in Defense of Municipalities, Guedes said, “We will simplify and reduce taxes so that Brazil can grown, combining two, three, four, five taxes into one, and we’ll label it as the single federal tax [imposto único federal].”
The Minister also confirmed that taxes, which previously weren’t shared with governors and mayors, would be distributed to the various states and municipalities following this reform.
Guedes added, “The good news is that all those contributions that weren’t shared, that were designed to save the federal government and take away resources from the municipalities and states, will be all shared once we create the single federal tax.”
“Money has to go to the frontline. Public policy can be formulated in Brasilia. However, its execution has to be decentralized. Its execution has to be carried out by governors and mayors,” he said.
Guedes concluded, “Brazil today has 65 percent of its resources in Brasilia. Nothing is missing here. However, in the states and municipalities, everything is missing. 70 percent of the revenues have to go there and 30 percent, at most, should stay here in Brasilia.”
Plenty of mayors showed their support for Guedes’ announcement, rewarding him with a standing ovation and yelling out his name in unison following his words.
Tiago Zilli, mayor of the municipality of Turvio in the state of Santa Catarina, said, “Guedes is the engine guy, who pushes forward, who is going to put together this federal pact and reduce taxation.”
Is a Financial Transaction Tax Coming to Brazil?
Marcos Cintra, Secretary of the Federal Revenue Service, also announced a proposal to create a digital tax on payments, which will affect financial transactions and be a lot broader than previous attempts at implementing this sort of levy.
More specifically, this financial transaction tax would cover the deposit and withdrawal of money from an account, therefore affecting all credit and debit transactions. It would also affect the exchange of products, the settlement of debts and foreign currency exchange transactions.
Furthermore, Cintra said Brazil would implement an electronic invoicing system for the services sector, one that will “revolutionize” tax administration in the country.
Cintra concluded, “What’s tax’s filet mignon these days? It’s the services sector. This is the tax base that grows the most throughout the world. I have no doubts that, in 10 or 15 years, it will represent the largest tax base to be exploited by governments worldwide.”
Any thoughts on this move by Brazil to simplify its domestic tax system? Let us know with a comment.
Note: All translations from Portuguese are the author’s.