NEW BRAZILIAN FISCAL FEDERALISM

Abstract

The overall objective is to analyze the impacts of the Tax Reform on the Brazilian federalist system. Specifically, the study aims to: (i) examine the historical development of Brazilian Fiscal Federalism and outline the general aspects of the National Tax System before the reform; (ii) present the legislative process of the reform and the main changes introduced by the Constitutional Amendment (CA); and (iii) analyze the main impacts of the Tax Reform on Brazilian Fiscal Federalism. The deductive method and qualitative research procedures were employed, based on bibliographic, legal, and documentary review. Constitutional Amendment No. 132/2023 consolidated the Tax Reform. The justifications presented during the legislative process focused on weighing the autonomy of subnational entities considering the suppression of tax competences from States and Municipalities, which lost the Tax on the Circulation of Goods and Interstate and Intermunicipal Transportation and Communication Services (ICMS), and the Tax on Services of Any Kind (ISS), respectively. In substitution, the revenue of these entities will now include the Tax on Goods and Services (IBS), which is part of a dual Value-Added Tax (IVA) system. The main impacts on Fiscal Federalism derive from the architecture of the IBS, which is shared between States and Municipalities, considering aspects such as unified legislation, exclusive destination-based taxation, and management of the tax by a Governing Committee. Although these changes weaken Brazilian Fiscal Federalism, they do not break with the federal structure, as argued by some scholars.