How the Brazilian Tax Reform Can Affect the Future of Industrialization in the Country

Zilah Maria de Oliveira Barros Ribeiro and Francisca Juliana Miranda Linhares

International Journal of Business and Management, 2025, vol. 20, issue 5, 16

Abstract: The Brazilian Tax Reform of 2023 (Constitutional Amendment 132/2023) represents a structural response to the country's chronic fiscal complexity, introduced amid a three-decade deindustrialization trend that reduced the manufacturing sector's GDP share from 27.3% (1985) to 11.3% (2022). This study analyzes the reform’s potential impacts on industrialization, focusing on three dimensions- (1) competitiveness gains from eliminating tax cascading via the dual VAT (IBS and CBS); (2) sectoral asymmetries, with benefits for input-intensive industries (e.g., automotive) and challenges for regional regimes (e.g., Manaus Free Trade Zone); and (3) inherent limitations, emphasizing the need for complementary policies in innovation, infrastructure, and workforce training. Methodologically, the research combines documentary review, international comparisons, and critical literature synthesis. The reform’s success hinges on mitigating inequalities—through SME training programs, federal compensation mechanisms, and revised regional incentives—and integrating it with industrial policies. The study concludes that while the reform addresses critical distortions (e.g., "Brazil Cost"), its full potential depends on a coordinated strategy linking tax simplification to investments in technology, logistics, and formalization. Without such measures, the reform risks perpetuating regional disparities and falling short of reversing deindustrialization.

Date: 2025
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