Brazil's president to pursue tax reform in 2017

BRASILIA (Reuters) - Brazil will seek to simplify its tax code in 2017, President Michel Temer said on Thursday, aiming to broaden his business-friendly reform agenda following proposals to modify the pension system and labor laws.

Brazil's President Michel Temer attends a breakfast news conference with journalists for a news conference at Alvorada Palace in Brasilia, Brazil, December 22, 2016. REUTERS/Adriano Machado

A government source familiar with the matter told Reuters the reform could include streamlining the tax regime of the oil and gas industry, changes to levies on the financial system, and the reduction of red tape in general.

Since taking office after the ouster of his leftist predecessor Dilma Rousseff, Temer has pledged to pursue structural reforms to lift Brazil from its deepest economic recession in decades.

This month, Congress sanctioned his proposal to limit growth of public spending for the next 20 years, clearing the way for votes on other measures. Brazil’s generous pension system must be overhauled if the spending cap is to have real effect, officials say.

In a news conference in the capital Brasília, Temer said he expects Congress to swiftly approve his plans to simplify the hiring of workers on temporary contracts, saying lawmakers have shown “strong support” for his agenda.

“Why not pursue tax reform now that plenty of bills have advanced?” Temer said, adding that his government would work hard to achieve the reform next year.

Economists have long criticized Brazil’s complex tax system as a barrier to long-term growth. Companies in Brazil spend on average 2,038 hours to do their taxes or about 12 times the average in the wealthy OECD group of nations, according to the World Bank’s “Doing Business” index.

Temer’s advisers have floated a proposal to unify the federal PIS and Cofins taxes to fund social security. The government could also negotiate with states to unify an inter-state tax known as ICMS, a measure considered crucial to reduce legal uncertainties.

The official, who asked not to be named because he is not allowed to speak publicly, said that in addition to changes for the oil and financial sectors, the broad reform could include the restructuring of the finance ministry’s tax appeals tribunal, known as CARF.

“These are the general ideas of what should be done. It is still in embryonic stages,” the source said.

Despite Temer’s efforts at reform, unemployment has continued to rise. Data on Thursday showed the economy shed a net 116,747 jobs in November, more than double economists’ expectations.

Temer approved a modest increase of 6.4 percent in the national minimum wage to 937 reais on Thursday, reflecting a slowdown in inflation.

The president also promised to support Congressional efforts to reform Brazil’s political framework, a messy multiparty system that critics say makes Brazil’s electoral politics complicated and often corrupt.

“The theme of political reform belongs to Congress, but we’ll incentivize it and support it,” he said.

Some lawmakers have called for rules limiting the proliferation of parties, blamed for fostering corruption by demanding broad coalition and deal-making in Congress.

There are currently 35 parties registered in Brazil’s electoral court, with 26 represented in the lower house of Congress.

Reporting by Maria Carolina Marcello; Writing by Bruno Federowski; Editing by W Simon and Lisa Shumaker