Brazilian leaders are raising hopes for a sweeping tax reform

Political leaders in Brazil they raised hopes for important fiscal reform, agreeing instead to rebuild the country’s Byzantine fiscal regime through a series of fragmentary changes.

“The ideal tax reform is one that Congress can approve at this time,” Arthur Lira, the speaker of the lower house of parliament, said Tuesday.

Fiscal reform is one of the tables of Paulo Guedes’ Minister of Finance liberal economic agenda, which aims to increase the competitiveness of Latin America’s largest economy.

For more than two years, however, progress has been glacial, with government alone highlighting his proposal of July last year. This proposal is now subject to an agreement made Monday evening between Lira, Guedes and Rodrigo Pacheco, the president of the Senate, to pass a series of smaller changes for Congress.

“We will make the tax reform possible at this time,” Lira said, adding that he expected discussions to continue throughout the year.

Under the new approach, the Senate will develop a constitutional amendment to allow for the unification of service fees at the state and municipal levels, while also considering separate legislation focused on tax refinancing. companies. Meanwhile, the lower house will discuss legislation to create a tax on goods and services at the federal level.

The new approach is likely to disappoint investors who had hoped that Guedes could quickly reconsider a taxation system long considered one of the world’s most complicated.

A medium-sized Brazilian company requires about 2,000 hours to prepare and pay taxes, according to data from the World Bank – the largest in the world. In contrast, an American group takes 175 hours and a British group takes 105 hours. Over the past 30 years, an average of 35 tax rules have been changed daily, or 1.45 per hour, according to the Brazilian Institute for Planning and Taxation.

“In my view, his idea is to develop a strategy to approve what is possible and not to wait for what is more difficult. The strategy to separate in different discussions is to make it easier. [to pass Congress], ”Said Douglas Mota, a tax associate at Demarest, the law firm.

Lucas Galvão, a tax expert at Barros Carvalho Advogados, expressed concern that the government had not yet submitted proposals to change taxes on income and industrial property. “We don’t even know what these changes will be,” he said.

Investors watching Brazil want the legislation to pass as soon as possible, recognizing that sensible reforms will become virtually impossible with federal elections next year.

“The breakdown doesn’t really appeal to investors as the governance and friendly nature of the administration market is increasingly in question,” said Jens Nystedt, senior portfolio manager at Emso Asset Management.

“One thing is for sure, they don’t have years and even if they decide on a partial approach they have to be on an accelerated time schedule if they are to successfully address the growing concerns of investors.”

Additional reports from Carolina Pulice

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