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Brazilian preparations for VAT reform

Both candidates in Brazil's upcoming presidential election, scheduled for October, support plans to reform the nation's tax structure, which will determine the country's future tax reform efforts.

Luiz Inacio Lula da Silva, a former president, is challenging Jair Bolsonaro for the presidency. Lula is in favor of combining local and state consumption taxes and setting up a single federal VAT rate. This would represent a fundamental departure from Brazil's intricate indirect tax structure.

The Brazilian legislature is debating the VAT reform bill. The legislation will align the system with the ICMS interstate tax on goods and services and combine nine federal taxes into a single VAT rate, capping rates at 17%.

Taxes on a number of necessities would be eliminated under this reform. The Lula campaign promises to build on this reform by raising tax rates on high earners' individual income as well as corporate dividend payments.

Brazil's new president, Jair Bolsonaro, has made it one of his goals to change the country's corporate tax laws and get rid of formulary apportionment. The Bolsonaro administration has so far been unable to achieve this reform, though.

Instead, if re-elected, President Bolsonaro will promise a reduction in fuel taxes. Utility taxes have been reduced by the divisive right-wing leader to lessen the effects of rising inflation. Bolsonaro, however, continues to lag Lula in the polls.



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