Brazil Carries Out a Pro-Growth Fiscal Reform

On Wednesday, Brazilian President Lula da Silva led a session of the Parliament that brought together the entire political class for the enactment of a tax reform considered "historic."

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Approved last week, the new regulations mark a historic milestone by achieving tax simplification that had not been accomplished in the past 30 years. During this period, the tax burden had exceeded 40 percent.

"It's a extremely important day," said Lula, celebrating the parliamentary debate on a tax law where around 20 political parties put forth their proposals.

"The reform won't solve all problems, but it will help address them with a fairer tax system," the Brazilian president added.

One of the main changes in the new system is the creation of a Value Added Tax (VAT) set at around 25 percent, unifying five taxes applied to consumption.

The text reads, "What makes you happy? It is to see that 'the economy has grown more than any economist imagined,' President Lula said during the session in the Lower Chamber on Wednesday when the reform to the Tax Law was promulgated."

VAT collections will be directed, on the one hand, to the federal government and, on the other hand, to state governments and municipalities.

According to the new tax reform, basic products will be tax-exempt, while the reform includes a tax on products harmful to health or the environment, such as tobacco, alcohol, sodas, and pesticides.

The Lula administration argues that the tax reform will result in a considerable reduction in business costs and an additional annual GDP growth of at least 1 percent.

In addition to worker support, the tax reform received approval from financial markets. In this regard, the credit rating agency Standard and Poor's upgraded Brazil's rating from BB- to BB.