Planning minister defends tax reform to reduce ‘Brazil Cost’

Brazil’s Planning Minister Simone Tebet said this Wednesday that the country must approve a tax reform to reduce the so-called “Brazil cost” and stimulate productivity and competitiveness.

“Tax reform is the only silver bullet we have to solve the Brazil cost. Companies are closing down in Brazil because of the Brazil cost,” Ms. Tebet said.

She spoke one day after German automaker Volkswagen announced it was temporarily halting production at its three car plants in Brazil, citing “market stagnation.” The news was seen as a sign of the failure of government efforts to boost ailing car sales.

In early June, President Luiz Inácio Lula da Silva issued a decree creating a program for discounted cars, with the aim of making car ownership more accessible and stimulating the industry. Manufacturers were granted tax breaks in exchange for selling passenger cars with discounts between BRL 2,000 and BRL 8,000 (USD 413 to 1,651). Although 80 percent of the program’s allotted budget had been spent by June 21, Volkswagen’s announcement this Tuesday would suggest sales have remained insufficient for the struggling industry.

“We need to look at this news coming from businesses as a clear sign for the political classes, of the responsibility that we have to change our tax system, which is chaotic,” Ms. Tebet told journalists in Brasília.   

“It shows that this [programs like the discounted cars plan] is not enough, that we can’t just keep patching things over. We need to shake things up at the root [of the problem], and this means shaking up the Brazilian tax system,” the minister added.

The ‘Brazil cost’ refers to the high operational costs of doing business in Brazil, with the country’s byzantine tax system a big factor. It is estimated that companies spend an average 1,501 hours per year doing their taxes in Brazil, compared to a world average of 233 hours, according to 2019 data from the World Bank.

The Lula government’s tax reform is seeking to address such issues, as well as the regressive nature of Brazil’s current tax system. The draft of a first part of the reform was presented to the House last week, with floor discussions pending the return of House Speaker Arthur Lira, who is currently in Portugal. 

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