Brazil improves ICMS (VAT) regime on intrastate trading

Tue 14th Aug 2012

Two of Brazil’s largest states have now agreed on proposals to reduce and simplify the Imposto sobre a Circulacao de Mercadorias e Servicos (ICMS) – the local equivalent of Brazil VAT or GST.  The reforms are designed to help elevate the fiscal competition between different states, known as the “Tax Wars” which creates barriers to trade, and double taxation for companies and consumers.

Key features of the changes, agreed on 22 August 2012 by the Southeast and South States, include:

  • Reductions of ICMS taxes of between 7% and 12% down to a single rate of 4%
  • Ability to offset input VAT on trades through ICMS credits
  • Centralised approval of future Brazilian VAT/ICMS tax cuts by states through the National Council of Financial Politics (Conselho Nacional de Politica Fazendania – CONFAZ) to prevent states unilateral introducing tax reductions to compete against other states.

The above changes follow the Federal Senate’s ruling in July 2012 that states must co-operate more on overlapping ICMS strategies and competition on imports and intrastate trading.  If you would like to learn more about Brazilian indirect taxes, please click here.