Brazil's ICMS Tax: Origin, Changes, Current Situation, and Paths to Recovery

The tax reform of 1965 in Brazil sought to streamline state taxation, replacing the old tax on sales and consignment (IVC) with a modern value added tax on the circulation of goods (ICM) as part of a profound change that aimed to build a national tax system. During the process of drafting the 1988 Constitution, the foundation of the ICM was expanded to include services and renamed ICMS. However, these changes have created increasing problems for the economy and the federation, which have worsened as successive attempts at reform have failed. Repeated attempts to improve the Brazilian tax system by adopting ad hoc measures have had little success. The diversity of interests and the complexity of the situation do not allow for isolated measures to make a big difference. It is important to seize the opportunity to advance towards a better understanding of the reforms in order to correct the many distortions that have accumulated in the tax system over more than four decades. For the first time, the federal issue precedes the discussion of tax reform.