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Is Brazil set for major tax reform this year?

Businesses trading in or with Brazil have been given a warning of potential tax reform.

Economy minister Paulo Guedes said last week that he wants the country’s tax system to be overhauled within four to five months, meaning businesses may be expected to comply with new legislation by the end of the year.

He told a virtual audience of industrialists that the government is aiming to deliver a simple and broad-based tax reform package that will include a new dual VAT system that comprises both federal and state level VAT. A 5% cut to corporate tax has also been recommended.

Guedes said: “We want a wide, but practical and quick, tax reform. It has to happen in four to five months, that is the time we have to get this approved.”

The minister also stressed that the overall tax burden will not increase, although he admitted that some compromises are likely to be made. Indirect taxes are set to be reduced under the new regulations, while dividends will be taxed.

It now remains to be seen if Guedes can progress with his tax reform and gain the necessary approval in Congress. He has already been forced to abandon plans for a ICMS financial transactions tax, but he is persevering with the majority of planned amendments to regulations.

Should widespread tax reform be enacted in Brazil this year, many businesses will be placed under tremendous pressure as they seek to implement processes that will allow them to comply with the new regulations.

Find out more about the current VAT regime in Brazil in our recent infographic.