Brazilian Lower House Approves Lula's Tax Reform

In the early hours of Friday, the plenary session of the Brazilian Lower House approved in a second vote President Lula da Silva's tax reform, which simplifies the country's tax system.

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The second ballot ended with 375 votes in favor, 113 against, and three abstentions, slightly less support than in the first, but broadly enough to move forward with the Constitutional Amendment Project (PEC).

The project can be sent to the Senate, where it will also need to be approved in two votes with the support of three-fifths of the legislators.

The initiative even had the support of the majority of parliamentarians from the Liberal Party (PL), the organization led by former President Jair Bolsonaro, despite the far-right leader requesting his colleagues to reject it.

The reform completely alters the complex tax model adopted by Brazil in the 1960s with the aim of simplifying the system, reducing tax evasion, and unifying various taxes levied by national, regional, and municipal administrations that overlap.

The tax reform has been discussed for several decades, and all administrations since Fernando Henrique Cardoso (1999-2002) tried to promote it but failed to garner enough votes.

The project, which has the full support of most business associations and major business entities, creates the Value Added Tax (VAT) to unify the five taxes currently levied on consumption.

The new tax consolidates two of the three taxes collected by the national government (IPI, PIS, and Confins), one under the responsibility of regional governments (ICMS), and another aimed at funding municipalities (ISS).

The tweet reads, "The Lula administration announces that the tax reform will eliminate taxes on the basic food basket. Zero taxes for food!!!"

The tax will now be collected by the federal government, and a portion of the revenue will be distributed to regions and municipalities through a special fund.

The project also exempts essential goods from taxes. The reform also introduces a "selective" tax on the production, commercialization, and importation of products considered harmful to health and the environment, such as tobacco, alcohol, soft drinks, and agrochemicals.

According to the Ministry of Finance, the reform can boost an additional 12 percent growth in GDP over 15 years because it will reduce costs for businesses.

The Lower House President Arthur Lira was one of the main advocates for the reform and urged legislators not to hinder it due to party differences.

"Let's set aside electoral concerns. The reform is not a political toy or a government agenda. The tax reform is a state agenda," he said before opening the vote amid a standing ovation.