Brazil’s lower house approves crucial tax trial rules change

4:51 pm Friday, July 07th, 2023

BRASILIA (Reuters) – Brazil’s lower house passed a bill on Friday aimed at raising the bar for companies to win challenges to their tax bills, delivering a win for the government of President Luiz Inácio Lula da Silva as it strives to bolster revenue and achieve fiscal balance.

The proposal, which has now advanced to the Senate, grants the government an automatic victory in cases of a tied vote by a federal tax appeal board regarding challenges raised by companies and individuals.

Former President Jair Bolsonaro’s administration had reversed this arrangement to favor taxpayers, resulting in an estimated annual loss of around 59 billion reais ($12 billion) to the state, according to Lula’s Finance Minister Fernando Haddad.

The bill is considered a key component of Lula’s economic plan to zero the primary budget deficit next year. Shortly after taking office in January, he sent an executive order to Congress aimed at reversing his predecessor’s alteration to the voting rules within Brazil’s Federal Administrative Council of Tax Appeals (CARF), which handles taxpayers administrative cases.

The executive order faced strong resistance from companies and was not voted on by Congress, expiring in early June. This prompted the government to prioritize a bill voting on the same topic in the lower house.

The proposal’s approval also represents a triumph for the government’s political coordination, defying expectations of a potential postponement until August after the lower house concentrated efforts this week to prioritize the vote on a historic reform on consumption taxes.

The outcome also sets the stage for the chamber to proceed with its final vote on the government’s new fiscal rules, considered essential for ensuring the long-term sustainability of the country’s finances.

By a procedural requirement, the tax trial changes needed to be deliberated beforehand. Lower house speaker Arthur Lira said earlier on Friday that the new fiscal rules would only be voted on next month.

($1 = 4.8630 reais)

(Reporting by Maria Carolina Marcello; Writing by Marcela Ayres; Editing by Isabel Woodford and David Gregorio)