© Reuters. A general view shows the plenary of the Chamber of Deputies during a session to vote on a constitutional amendment that increases the government spending ceiling in Brasilia, Brazil December 20, 2022. REUTERS/Adriano Machado/File Photo
BRASILIA (Reuters) -Brazil’s lower house of Congress approved in the early hours of Friday the main text of a tax reform that will restructure the country’s complex consumption taxes, a move President Luiz Inacio Lula da Silva touted as a “great victory”.
Such a reform – previously attempted by various administrations without success – is a key step in Lula’s plan to boost growth.
Lawmakers at the chamber voted in two rounds to approve the reform and are set to conclude voting some amendments on Friday morning, after which the bill will be sent to the Senate, where it will also be voted on in two rounds.
“It’s a historic moment and a great victory,” Lula tweeted after the voting. “Brazil will have its first tax reform of the democratic period … We are working towards a better future for everyone.”
Starting in 2026, the reform plans to over eight years merge five levies currently in place into a value-added tax (VAT) with separate federal and regional rates, which will be defined later by a complementary law.
Economists at JPMorgan (NYSE:) said the move represents a drastic, albeit gradual, change on consumption taxes.
“For a while, many doubted that the reform would be approved,” they said in a note to clients. “Long-term transition means that complexity will remain high for some time, but we look for enhanced productivity and higher growth down the line.”
The lower house approved the reform by 382-118 in the first round of voting held late on Thursday. Lawmakers then passed it in a second round overnight by 375-113, a wide margin as 308 votes were needed for the proposal to be approved.
“It’s a necessity for our economy so our productivity can advance,” Finance Minister Fernando Haddad said. “The outdated way in which taxes are currently organized greatly hinders industry, commerce and services.”
The approval was a major win for lower house Speaker Arthur Lira, who strongly backed the bill, with lawmakers from the big tent “Centrao” bloc he leads overwhelmingly voting to pass it.
However, it represented a huge defeat for former President Jair Bolsonaro as he tries to lead the opposition to the Lula administration despite being barred from running for office until 2030.
The former far-right leader campaigned against the reform and urged lawmakers to vote against it, saying he could never back something coming from Lula’s Workers’ Party. Bolsonaro’s efforts were in vain and even some members of his party voted to pass the bill.
