Between last night (6/7) and early this morning (7/7), the plenary of the Chamber of Deputies approved Proposal for Constitutional Amendment (PEC) number 45, which addresses Tax Reform. The approval has been made in two rounds in the Chamber, with the endorsement of a wide majority of deputies: in the first round – 382 in favor and 118 against; in the second round – 375 in favor and 113 against. The only party that recommended voting against was the PL, with the infamous and ineligible Jair Bolsonaro at the forefront.
The analysis of the party amendments is still pending, which is expected to be carried out by the deputies today. Once all the votes are concluded in the Chamber, the Tax Reform Amendment will be analyzed and voted on by the Senate. If there are any changes in the Senate, the proposal will still need to return to the Chamber.
There was great anticipation for the approval of the Tax Reform, considering that proposals for changes in the Brazilian tax system have existed in the Brazilian parliament for nearly three decades but have never made significant progress. In this regard, what has been accomplished now holds great political significance and is not a minor fact.
From the perspective of the interests of the majority of the Brazilian people, the current reform has important positive aspects but also limitations and issues. The main contradiction was the decision to divide the Tax Reform into two parts, postponing the discussion on changes to income taxes for a later stage.
This division in two parts, for example, postponed the possibility of finally regulating the only tax mentioned in the Constitution that has never been regulated by the Brazilian parliament: the tax on large fortunes. Additionally, the opportunity to advance in increasing the progressivity of income taxes and discussing the creation of a tax on profits and dividends has been lost for now.
The absence of the approval of proposals that impose higher taxes on large fortunes and on the outrageous profits is undoubtedly the major contradiction of this Tax Reform. Therefore, it is necessary to acknowledge the positive aspects while also highlighting this significant limitation. Fortunately, in the proposal approved yesterday, it was determined that the federal government will have 180 days to submit to the parliament the proposal for the second part of the tax reform. Hence, the main struggle begins now, requiring a broad public debate that reaffirms the idea that prevailed at the polls: the inclusion of the poor in the budget and the inclusion of the rich in income tax!
Positive aspects and some problems
However, in the proposal approved yesterday, there are several positive, albeit partial, aspects that justify why the majority of left-wing lawmakers, including the majority of federal deputies from PSOL, voted in favor of PEC 45.
Among them, the following can be highlighted: the end of taxes on basic food items, the introduction of IPVA (vehicle property tax) for boats and aircraft (yachts and private jets); a more progressive IPVA, with greater discounts for vehicles that have a lesser environmental impact; the possibility of progressively increasing the tax rate on large inheritances and donations; the creation of the possibility to refund a portion of taxes paid to consumers with lower incomes (cashback); measures to discourage tax competition between states; and reduced taxes on public transportation and cultural activities.
Furthermore, there is a simplification of consumption taxes, which is not a bad thing. After all, the proposal replaces five existing taxes (three federal – IPI, PIS, and Cofins; one state-level – ICMS; and one municipal – ISS) with a value-added tax, with the revenue divided among the federal government, states, and municipalities. All of this is accompanied by a lengthy seven-year transition period that only begins in 2026.
However, there are also problems in the approved reform, which were introduced under pressure from agribusiness and other business sectors. The ruralist caucus included exemptions for products and items that are outside the scope of the food basket. Banks managed to impose a special tax regime for their sector. Private healthcare and education also gained unjustifiable tax benefits. On the other hand, there were no explicit benefits for family farming and the production of healthy food.
In conclusion, there are clear advancements in the reform, but also limitations and problems. Regarding the negative aspects, it is crucial to exert social and political pressure for the Senate to remove these controversial provisions introduced by reactionary forces.
PSOL on the correct side, once again.
The advancements present in the Tax Reform proposal, albeit partial, opened the possibility for PSOL caucus to indicate a vote in favor of PEC 45. The situation here was different from what we recently experienced with the Fiscal Framework proposal, which was essentially a reactionary measure that PSOL fought against, and the entire caucus voted against it.
However, PSOL not only voted in favor. Several PSOL lawmakers highlighted the limitations of the proposal and spoke about the mistake of dividing it into two parts, which postpones the issue of taxes on large fortunes, profits, and dividends to a later moment. The party submitted a highlight (only one was allowed per party), which will still be debated and addresses the aim to expand the taxation of agrochemicals, among other points.
The majority of the caucus (ten deputies) voted in favor of the proposal, with all the necessary differentiations, while three other lawmakers chose to abstain. The division within the caucus is unfortunate, especially at this moment, but overall, the majority of the PSOL caucus fulfilled its role of supporting measures that aim to serve the interests of the people, while always pointing out the contradictions and limitations of government and parliamentary initiatives.
In particular, PSOL emphasized that the most important aspect will be ensuring that the second part of the Tax Reform truly materializes.
Fight for the second phase of Tax Reform
More than celebrating the positive aspects and criticizing the negative ones, the main task regarding Tax Reform is to fight for the effective implementation of its second phase, where it will be possible to advance several proposals accumulated by the left and social movements in recent years. This includes, especially, the regulation of the tax on large fortunes, the expansion of progressivity in income taxes, and the creation of a tax on profits and dividends.
However, to achieve these and other more advanced proposals, it will require a great deal of pressure, organization, and mobilization. Whether it is to ensure that the government includes these proposals in the Executive’s initiative within the 180-day deadline or to effectively pass them in the National Congress.
The significant weight of the far right and right-wing in Congress is a major obstacle to the approval of these fundamental measures that are crucial for the Brazilian tax system to effectively combat all existing injustices and inequalities. Relying solely on negotiations with the “centrão” within the parliament is unlikely to bring significant victories in a potential second phase of the reform.
Hence, adopting a merely contemplative or celebratory stance would be a mistake. The crucial step now is to prepare for these and other future battles. In these 180 days, we need to expand the discussions, organization, and popular mobilization to ensure the progressive taxation of the super-rich and large businesses, a crucial revenue source to guarantee social investments that improve the lives of the majority of the people. Lula needs to take the lead in persuading the public and mobilizing social support for the approval of the second and most important part of the tax reform, which cannot be delayed.