After winning the first round of the presidential election in Brazil, Senator Flávio Bolsonaro has proposed revising parts of Brazil’s planned VAT reform, arguing that the new system could impose an excessively high tax burden on businesses and consumers. If elected president, he would seek constitutional amendments to change certain aspects of the reform, reduce payroll taxes, and allow workers to retain a larger share of their earnings.
Bolsonaro’s Objections to VAT Reform
The VAT reform was approved in 2023 under President Luiz Inácio Lula da Silva to simplify Brazil’s highly complex tax system. It aims to replace multiple existing consumption taxes with a dual VAT system administered at the federal and regional levels. The reform is intended to streamline tax collection and reduce the complexity of complying with different tax rules.
However, Bolsonaro argues that the reformed system could result in an effective VAT rate of approximately 28%, an estimate cited by economists but not yet finalized by the government. He considers this rate too high and believes the reform needs adjustments to prevent excessive taxation.
His position is not a rejection of tax reform altogether. Bolsonaro acknowledges that Brazil’s existing tax system is overly complicated and supports its modernization. His main concern is that simplification should not come at the cost of a higher overall tax burden. In addition to revising consumption taxes, he proposes reducing payroll taxes to increase workers’ take-home income.
Bolsonaro’s economic adviser, Daniella Marques, has outlined plans to reverse several tax measures introduced under President Lula. These proposals include reviewing the dividend tax introduced in January, 2026, abolishing the 12% tax on crude oil exports, and reversing increases to the Financial Transactions Tax (Imposto sobre Operações Financeiras) affecting corporate credit, foreign-exchange transactions, and certain private pension investments.
Lula’s Position
Lula’s platform emphasizes tax justice, reducing inequality, eliminating distortions and privileges in the tax system, and implementing the consumption-tax reform approved during his administration. His government has also introduced a dividend tax to help finance income-tax exemptions for middle-income earners and has advocated reducing tax exemptions and inefficient tax incentives.
What’s at Stake
The competing proposals form part of the candidates’ economic policy differences ahead of the presidential runoff scheduled for October 25, 2026. A Bolsonaro victory could mean rolling back several Lula-era measures, while a Lula victory would continue his focus on redistribution and removing tax privileges alongside Brazil’s Dual VAT Reform.
