The tax reform approved by the Legislative Assembly last Monday, December 3, was published this Tuesday, December 4, in the Official Gazette. The regulation will reduce Income Tax from its current maximum level of 30% to 20%, replace the Sales Tax with the Value Added Tax (VAT) – keeping the rate at 13% – and use financial intermediaries as VAT withholders. The law is expected to enter into force in the second half of 2019.

The regulation, which changes Law 6826 on Value Added Tax (VAT), maintains the 13% VAT rate. However, it adds reduced rates of 1% for sales and imports of agricultural goods included in the basic consumer basket. Tax exemptions will apply to loans and credit interest, transfers from financial institutions, deposit-taking services, purchase, sale or exchange transactions involving foreign currency, and credit and debit card commissions.

There may be renewed attempts to declare the reform unconstitutional and thus suspend the application of its more contested articles. As such, the role of the judiciary will be fundamental in the enforcement of this regulation, with the implementation of the content of the articles as agreed potentially in the hands of the judges of the Constitutional Court.