Brazil Senate considers VAT reform plan

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EY Global
10 Aug 2023
Subject Tax Alert
Categories Corporate Tax
Jurisdictions Brazil

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  • Brazil's Senate is currently analyzing a long-discussed tax reform proposal for indirect taxes. The approval process is expected to be concluded in the coming months.
  • Currently one of the most complex tax systems in the world, Brazil's legislative framework for indirect taxes could undergo major changes.
  • If approved, the proposal will result in a major simplification in rates, incidence and value-added tax (VAT) returns.

The Brazil Senate is currently analyzing a tax reform proposal for indirect taxes that, after many years of discussion, passed the Chamber of Deputies on 7 July 2023.

The proposal provides for a major simplification of the Brazilian tax system, streamlining the five existing indirect taxes into just two main taxes (IBS1, state and municipal, and CBS2, federal) plus an excise tax and a possible state contribution applied upon primary and semi-finished products (still under discussion in the Senate).

In addition to significantly simplifying the current tax system, the proposal would generate a wide range of changes in markets and relative prices of products, and might also reduce the "weight" of tax factors in allocation decisions for productive and commercial investments.

If the reform is approved as proposed, its implementation will require considerable transition time. Therefore, taxpayers should begin taking action now to prepare for the change, such as:

  1. Understand the impacts that the reform will bring to the business (analyze VAT effective burden before and after the reform, evaluate changes in the tax incentives currently applied to the business, and understand the effects on the price of products sold)
  2. Analyze the VAT accumulated credits, working on a monetization plan before the tax reform is implemented
  3. Review the VAT credits to understand if there are types of credits that were not properly deducted to use them now

Our team of EY specialists in Brazil is prepared to help our clients understand and assimilate the tax reform into their routines and processes, as well as address challenges imposed by the new tax rules

For additional information with respect to this Alert, please contact the following:

Ernst & Young Brazil
VAT and Global Trade experts:
  • Bruna Felizardo, São Paulo
  • Igor Cavalcanti, Rio de Janeiro
  • Marcelo Frateschi, São Paulo
  • Patricia Canhadas, São Paulo
  • Paula Pitão, São Paulo
  • Phelippe Grande, São Paulo
  • Rafaella Vilela, São Paulo 
  • Ricardo Gazotto, Curitiba
  • Rogério Gomes, Terco
  • Sarah Barbassa, São Paulo
  • Tatiana Sodre, Rio de Janeiro
  • Tatiane Redondo, São Paulo
  • Virgínia Pillekamp, São Paulo
Tax leading partner:
  • Waine Peron, São Paulo

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor

For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.