Brazil unveils compensation funds in proposed tax reform

BRASILIA (Reuters) – Brazil’s proposed tax reform will include compensation funds to benefit states which lose money under the changes, the bill’s coordinator Congressman Aguinaldo Ribeiro said on Thursday.

According to the proposed bill, which must still be debated by Congress, the reform will merge various levies into a value-added tax with separate federal and regional rates.

The reform is a major goal of the administration of President Luiz Inacio Lula da Silva, who is looking to boost productivity and stimulate economic growth.

The restructuring of Brazil’s notoriously complex consumption taxes has already been attempted by various governments multiple times without success.

The proposal, which would shift the tax basis from where goods are produced to where they are consumed, is expected to benefit the coffers of Brazil’s wealthier and more populous states.

The proposal sets a 50-year transition period for such change, starting only in 2029, as a measure to address the historical resistance of some state governors.

The federal government would also finance a fund devoted to the development of states, at a cost of 8 billion reais in 2029 rising to an annual 40 billion reais ($8.38 billion) from 2033.

A second fund would be created to compensate for tax benefits already granted by states.

($1 = 4.7729 reais)

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