Corporate Tax News Issue 64 - November 2022

Post-election tax reform: What can we expect?

Brazil’s recently concluded 2022 presidential elections have been regarded as one of the most disputed and polarised in the country’s history, with the contest between candidates Lula da Silva and Jair Bolsonaro (the incumbent). Lula was elected president with 50.9% of the votes against 49.1% for Bolsonaro, i.e., a very narrow margin of 1.80% (or 2.1 million votes). Lula, who will assume office on 1 January 2023, is the oldest candidate to assume the Brazilian presidency and the only one to be elected three times.

Although tax reform was on the agenda of both candidates, independently of the election results, Brazil was already expecting changes in the tax area, mainly to the corporate income tax and VAT legislation. An income tax reform bill pending in the Senate was approved by the Chamber of Deputies well over a year ago on 2 September 2021, but the Senate has not taken any steps to move the bill forward. Two bills on VAT reform are under discussion, neither of which has been approved. Brazil levies VAT at the federal, state and municipal levels and unification of the VAT will require an exhaustive discussion between the parties, as well as a Constitutional amendment, and for that reason may be more time-consuming than the income tax reform.

According to the Government Plan and information presented by Lula and his team during the lead-up to the election, the administration intends to discuss tax reform during the first six months of 2023 (even though this is not clearly stated in the plan document). The plan does not provide much detail, but it does indicate that income tax and VAT reform are priorities, particularly in the context of one of Lula’s main pledges, which is to address the crushing poverty situation in Brazil and ensure a progressive tax system where the wealthy pay more tax and the poor less. The Government Plan states (unofficial translation):

“We will propose a solid, fair and sustainable tax reform that simplifies taxes and requires the poor to pay less and the rich to pay more. Pillars of the reform will be “simplifying” and reducing consumption taxes, rectifying tax injustices by guaranteeing tax progressivity, preserving the financing of social wellbeing by the State, restoring the federal balance, transitioning to an ecologically sustainable economy, improving international trade and ensuring that products have greater added value and embedded technology.

We also want to correct a mechanism that historically has imposed an unfair burden on the poor: tax evasion.”

Taxation of dividends is an area that Lula wants to target, as dividend distributions currently are tax-free. Introducing the taxation of dividends would ensure that the wealthy pay tax.


The transition from Bolsonaro to Lula should not affect the accession of Brazil to the OECD. Also, the alignment of Brazil’s transfer pricing rules with the OECD guidelines is ongoing, with the tax authorities and the government expected to present a bill in the coming months (for prior coverage, see the article in the June 2022 issue of Transfer Pricing News).

While it is unclear what precisely will be discussed during the first six months of the Lula presidency, it is not possible for the entire tax reform (income tax and VAT) to be completed within this period. The government defends the phasing in of tax reforms, so it is possible that the taxation of dividends and any reduction of the corporate income tax rate would be prioritized since there is no need to amend the Constitution for these changes to be implemented.

However, the government’s ambitious agenda and motivations may not necessarily be on par with the willingness and mood of the Congress. The new government will have to negotiate with the deputies and senators to form the necessary foundation to effectively manage tax reform initiatives and other planned changes in the country. Stay tuned.

Hugo Amano