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Brazilian lawmakers have given their approval to Constitutional Amendment Bill No. 45/2019

In a historic move, Brazilian lawmakers have given their approval to Constitutional Amendment Bill No. 45/2019, heralding the most significant transformation in the country's tax system since the end of the military dictatorship. This landmark legislation, endorsed by both the House of Representatives and the Senate, is set to be enacted on December 20, replacing five distinct consumption taxes with a dual VAT (Value Added Tax) system.

Brazilian lawmakers have given their approval to Constitutional Amendment Bill No. 45/2019

The innovative dual VAT system involves one tax charged by federal authorities and another at the regional level, marking a departure from the previous tax structure. The implementation of this reform is scheduled to occur gradually over eight years, commencing in 2026. One noteworthy aspect is the shift from taxing goods at their production site to a model where levies are imposed at the point of consumption, a transition expected to unfold over 50 years.

Luxury items, including jet skis, yachts, and speedboats, will now be subject to vehicle tax, overturning their previous exemption. Allan Fallet, a partner at Mauger Muniz Advogados in São Paulo, emphasized the historical significance of this tax overhaul, stating, "Since the end of the military dictatorship [in 1988], this is the first major change in the Brazilian tax system."


The primary goal of the tax reform is to unify major consumption taxes and establish simplified mechanisms for tax collection. Allan Fallet emphasized the significance of the credit rating upgrade by S&P Global Ratings, asserting that it enhances Brazil's economic landscape, making it more favorable for foreign investments.

Gabriel Caldiron Rezende, a partner at Machado Associados in São Paulo, acknowledged the positive aspects of the constitutional amendment, citing the complexity of the current Brazilian consumption tax system and the challenges it poses. However, he cautioned about potential concerns, stating, "Although the approval of the tax reform has been widely celebrated in Brazil, some concerns are already arising."

Thais Veiga Shingai, a lawyer at Mannrich e Vasconcelos Advogados in São Paulo, expressed cautious optimism about the reforms. Shingai highlighted the alignment of Brazil's taxation with international best practices, reducing the complexity of the tax system and making Brazilian companies more competitive. However, she acknowledged that challenges lie ahead, particularly during the intense and challenging discussions regarding the complementary laws of the IBS and CBS between 2024 and 2025.

In summary, Brazil's long-awaited tax reform represents a significant shift in its tax system, aiming to reduce complexity and increase transparency. While experts are optimistic about the positive impact, they anticipate challenges and discussions in the coming years as the country adapts to the new tax landscape.



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