Chances of Brazilian tax reform now 'highly unlikely' this year

A Brazilian senate committee postponed a vote on a long-awaited national tax reform on Tuesday, meaning there is little chance of any advance on the proposed constitutional amendment in the coming months, mainly due to the upcoming elections in October.

"It's highly unlikely that we'll have a broad tax reform this year. What we may see would just be some isolated adjustments to taxes, with measures with a somewhat populist bias, such as a reduction in income tax for individuals," Luciano Rostagno, chief Latin America strategist at Banco Mizuho, told BNamericas.

The senate constitution and justice commission postponed the analysis of the tax reform scheduled for late on Tuesday due to a lack of quorum. No date has yet been established for a new voting session. 

Absence of a quorum is a strategy often used by legislators when they do not want to approve a certain matter, simply choosing not to attend the session.

The reform has already undergone more than 250 amendments, of which around 70 have been approved, but there is still no consensus among members of the committee to discuss them. The rapporteur of the bill, senator Roberto Rocha, was angered by the postponement and said he did not understand the reason for what he described as a “boycott”.

"Over the past three years, we’ve managed to build the text that has advanced most regarding tax reform. We’re dealing with a reform of the consumption base, not the income base or equity. In other words, it’s the base that includes most of Brazil’s population, particularly the poorest,” he was reported as saying on the senate news website, adding that Brazilians are subject to some of “the severest [consumer taxes] on the planet. 

The tax reform under consideration in the senate is considered significant as, among other things, it is aimed at unifying various consumer taxes currently into a single value-added tax.

This is in line with frequent calls for simplification of what government and business leaders claim is an over-complicated tax system, thus reducing red tape, which can be an obstacle to investment.

With the delay of the vote in the senate committee, analysts think that the upcoming elections will make it very unlikely that the tax reform will progress this year. In October, Brazilians go to the polls to vote for president, state governors, senators and lawmakers.

"The next government in Brazil, whatever that may be, should treat a broad tax reform as a priority and I think that, looking to 2023, it's quite possible that we will see such a reform approved. There is a consensus being formed by different political forces that the complex Brazilian tax model has an impact on the real economy," said Rostagno. 

Although the main target of a tax reform is to reduce red tape, stakeholders in certain sectors are closely following the discussions on the possible changes. The mining industry in particular in particular is worried about being hit with higher taxes, since it has been enjoying higher profits in recent times and could be seen as a cash cow by authorities.

Pictured: Brazil's congress buildings: Source: AFP