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Tax Reform could change Brazil! With the end of tax incentives, companies that fled wealthy states could be back. São Paulo and other economic hubs are already feeling the return movement. Who wins and who loses in this new era without tax war? Discover the impact of this tax revolution!
The ongoing tax reform in Brazil can trigger a major change in the national production sector.
With the progressive end of tax incentives granted by states, companies that migrated to less developed regions in search of tax advantages may reconsider their location and return to states with more consolidated infrastructure.
The impact of this change should be significant for the economy, especially for states that, for decades, have used these subsidies as a strategy to attract investment.
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End of incentives and new tax scenario
By 2033, about R$200 billion in tax incentives granted by ICMS will be eliminated.
This estimate was made by the extraordinary secretary of Tax Reform, Bernard Appy.
According to him, the new tax model seeks to balance revenue between states, eliminating benefits that have favored the tax war over the years.
The expectation is that the elimination of these incentives will result in a lower tax rate, without increasing tax burden, encouraging a more equitable environment for business.
The gradual withdrawal of incentives will begin in 2029, with total elimination expected by 2033.
As a way to mitigate the impact on companies that currently enjoy these benefits, a Tax Benefits Compensation Fund, which will make R$160 billion available between 2029 and 2032 to ensure that the commitments already made are met.
More structured states should benefit
Experts point out that the new model could benefit states that lost companies during the tax war, such as São Paulo.
With the elimination of incentives, infrastructure, workforce qualifications and proximity to large consumer markets are once again decisive factors in choosing the location for installing industries and services.
According to sources, the Secretary of Finance of São Paulo, Samuel Kinoshita, has already received expressions of interest from companies in returning to the state.
However, experts warn that not all companies that migrated should automatically return, as many have created economic and logistical roots in the places where they are located.
Most impacted sectors
The impact of the reform will vary depending on the sector of the economy.
Companies with lighter capital structures, such as the clothing and food industries, tend to be closer to large consumer centers.
Sectors that depend on heavy infrastructure, such as meatpacking plants, may face difficulties in relocating due to the high costs of demobilization and redeployment.
A relevant example is the automotive sector.
Car manufacturers that set up in states that grant tax incentives, such as Goiás and Pernambuco, may reconsider their locations.
According to tax consultant Angelo Angelis, these companies depend on complex supply networks and efficient logistics infrastructure, which could favor a return to states like São Paulo.
In addition, large wholesale distribution centers are also expected to be affected.
Many companies that migrated their operations to ports such as Itajaí (SC) and Vitória (ES), seeking tax advantages, are now reassessing the viability of remaining in these locations after the reform.
The future of regions that will lose companies
To avoid an economic collapse in states that have traditionally benefited from the fiscal war, the reform foresees the creation of the National Regional Development Fund (FNDR), which will receive transfers from the Union, reaching R$60 billion annually.
These resources will be directed towards investments in infrastructure, innovation, research and development, seeking to reduce regional disparities.
However, some experts fear that without incentives, Many states may face a situation similar to that of the city of Detroit in the US, which went into decline after the flight of car manufacturers.
According to Luiz Bichara, a tax lawyer, companies that are only in these regions because of the tax benefits tend to leave as soon as the incentives are completely eliminated.
Rodrigo Spada, president of Febrafite (National Association of State Tax Inspectors), believes that the transition will be gradual, as the decision to relocate involves high costs.
For him, the end of the tax war will benefit competition by creating fairer conditions between companies.
According to a study by Febrafite, Brazilian states will give up R$267 billion in 2025 due to the granting of tax incentives, but these benefits have not resulted in significant regional development.
A new economic model for Brazil
With the tax transition underway, the Brazil moves towards a new model of economic development.
The success of the reform will depend on how states and companies adapt to the new scenario, balancing the need for revenue with maintaining an attractive business environment.
The debate over the effects of this change continues, but one thing is certain: The end of the tax war marks a new era for the Brazilian economy, with challenges and opportunities for states, companies and workers.
