Brazil: VAT Reform Advances with New Exemptions and VAT Rate Cap

The lower house approved significant reforms to the Value-Added Tax (VAT) system, including new exemptions and a cap on the final tax rate. The first proposal to regulate the new VAT tax (PLP 68/2024) passed with a decisive 336-142 vote and now proceeds to the Senate for further consideration.

KEY CHANGES AND INCLUSIONS

After extensive discussions, lawmakers implemented several changes during the plenary session. Notably, meat was added to the list of food basket items exempt from VAT, marking a significant victory for the agricultural sector. Additionally, the cashback for utility expenses was increased from 50% to 100% for poor families. Other exempt items now include certain medicines and specific products such as salt.

VAT RATE CAP

Despite opposition from the economic team, who calculated that the VAT rate would need to rise from 26.5% to 27% to cover the new exemptions, lawmakers established a cap on the standard tax rate at 26.5%. The administration is required to submit additional complementary legislation by 2031 to ensure the standard rate does not exceed this cap.

LEGISLATIVE OUTLOOK

Senators are set to begin discussions in August. After Senate approval, the proposal is likely to return to the lower house for final deliberations between November and December, just before the year-end.

Source: Eurasia Group