Brazil's complex tax system could get an overhaul next year as proposals to reform it gain momentum in Congress.
Under the reform, nine taxes (IPI, IOF, PIS/pasep, cofins, salary-education, cide-fuels, CSLL (federal); ICMS (state); and the services tax - ISS (municipal)) would be consolidated into one VAT. It would also aim to simplify tax collection and potentially introduce a national tax-credit program for low-income households.
The government is including in its proposed tax reform that withdrawals and cash deposits be taxed at an initial rate of 0.4%. The collection is part of the concept of tax on payments, which is being compared to the former Provisional Contribution on Financial Transactions (CPMF).
We cannot talk about raising taxes in Brazil"
The CPMF, which taxed all financial transactions including checks, was always unpopular, and opposition to it runs deep.
For debit and credit payments, the initial rate studied is 0.2% (for each end of the transaction, payer and recipient).
The goal is to make Brazil more business-friendly and encourage foreign investment by simplifying the tax requirements for companies.
Of the current tax system in Brazil, Rocha said at the beginning of September: "We cannot talk about raising taxes in Brazil. [The reform] will be based on social justice principles to simplify and modernize the unfair and unequal system."
Senator José Serra warned that reform might increase the tax burden on Brazilian states, rather than simplify their processes.
There have been several attempts during the last years to improve the Brazilian tax system, but they have all been unsuccessful. However, tax reform is the government's main economic priority in the second half of this year, after it pushed social security reform to the brink of full Congressional approval in the first half.