Brazil: Brazilian Chamber of Deputies approves the Tax Reform PEC

Last July, the Chamber of Deputies approved in two rounds Constitutional Amendment Bill No. 45/19 (PEC), which proposes the long-awaited tax reform in Brazil, accompanied by a new tax structure.

The PEC will now be forwarded to the Senate, where it will probably be voted on in the second half of this year, after the parliamentary recess, as announced by the president of the House, Senator Rodrigo Pacheco.

For a long time, experts have argued that the Brazilian tax collection system is one of the most complex in the world, full of rules and exceptions.

Tax reform has been a pending agenda of both the Executive and Congress for decades, but it has always been considered difficult to pass. At other times, other equally important reforms, such as the Social-Security and Labor reforms, were granted priority.

The difficulty in tax discussions lies in the large number of interests involved. Governors, mayors, and specific sectors of the economy are reluctant to “give up” taxes and exemptions. The current reform includes the creation of compensation funds for areas that lose resources, but the States will no longer have the power to set their own tariffs, which will end the so-called “tax war”.

In other countries, the tax system is simpler, with few tariffs applied to specific transactions.

Economists stress that the purpose of the reform is not to change the Brazilian tax burden. That means, after the reform, Brazilians should continue to pay roughly the same amount of taxes as they do today, and the government will continue to collect similar amounts.

The economic gain will be derived from the greater efficiency of the system, making tax payments less burdensome in Brazil. Thus, there may be an increase in the collection in the long run if the tax reform successfully increases the productivity of the economy and reduces the so-called “Brazil cost”.

The reform has now been made a priority by the Executive Branch and the Congress and is in progress.

The text of the PEC suggests replacing the five main taxes (IPI, PIS, COFINS, ICMS, and ISS) with a single tax, the VAT (Value Added Tax). This VAT would be divided into two parts: the Contribution on Goods and Services (“CBS”), levied by the Federal Government, which would replace the IPI, PIS, and COFINS, and the Tax on Goods and Services (“IBS”), levied by the States and municipalities, which would replace the ICMS and ISS.

Another new tax would be the Selective Tax, levied on products and services harmful to health or the environment, such as cigarettes and alcoholic beverages.

Tax would be collected at destination (place of purchase or consumption) and no longer at the origin.

Some current taxes, such as IPVA (tax on vehicles), ITCMD (estate and gift tax), and IPTU (urban real estate tax) would continue to be levied by States and Municipalities, respectively.

The reform would be gradually implemented from 2026 to 2032, with initial testing of CBS and IBS rates in 2026, extinction of PIS and COFINS in 2027, and phased reduction of state and municipal taxes (ICMS and ISS) until their extinction in 2033.

At the moment, the Congress is focused on passing the PEC, with tax rates to be discussed at a later stage. What was recently approved were test rates for the initial phase of the reform.

The bill provides for three types of rates: a standard rate, a reduced rate, and a zero rate. The last two shall apply to products considered essential for the population, such as medicines and educational services, aiming to reduce the cost of the basic food basket.

The possibility of lower rates if government revenues increase is also being discussed, as well as the possibility of cashback, with part of the CBS and IBS taxes returned to individuals.

After the changes in the law are enacted, as provided for in the PEC itself, the Congress will have to review other aspects of the tax system, such as the individual and corporate income tax, as well as the collection of taxes on dividends, which have not been changed to this date.


For more information on the above or other matters, please contact Maristela SA Rossetti ( or Gilberto Rossetti (

This article is based on publicly available information and given for informational purposes only. It is not intended as legal advice foreign subsidiary as a comprehensive analysis of the matters referred to herein.