Dictator Lula da Silva seeks to approve a massive VAT hike

The Brazilian commercial air sector is concerned about a detrimental tax reform by socialist dictator Lula da Silva that will increase its operating costs and, consequently, will cause a rise in ticket prices for both domestic and international flights.

This situation could also affect Argentine tourists planning to vacation in Brazil, since a rise in fares is expected.

The reform introduces a new dual Value Added Tax (VAT), consisting of the Contribution on Goods and Services (CBS), which is federal, and the Tax on Goods and Services (IBS), applied by states and municipalities.

This tax structure, which was approved last January and driven by Lula da Silva's government, includes air transportation and features a massive 26.5% rate, much higher than the current 9%.

Although its implementation is scheduled for 2026, the industry is already warning about the negative impact. This change is compounded by the increase in the Tax on Financial Operations (IOF), with which the socialist government seeks to increase tax revenue.

These enormous tax increases are due to the fact that, because of socialist populism, Brazil is facing a massive fiscal deficit. Faced with this problem, instead of reducing spending, the Brazilian government seeks to take more money from Brazilians through tax hikes.

The International Air Transport Association (IATA) anticipates that the measure will cause a rise in ticket prices and a drop of nearly 30% in passenger demand. According to their warnings, this could put at risk billions of dollars in tourism revenue, affect regional connectivity, and hinder economic inclusion.

In this context, it is estimated that the average cost of airline tickets in Brazil will increase from USD 130 to USD 160 on domestic flights, and from USD 740 to USD 935 on international routes.

The impact on Argentine tourists

According to various industry sources, it is very likely that the increase in operating costs in the Brazilian market will be passed on to the ticket prices paid by Argentine tourists.

Although they will not pay the tax directly when purchasing their tickets, airlines will face this additional cost, which will inevitably be reflected in the final fares, although it is still unknown in what proportion.

Data from the Brazilian Agency for International Tourism Promotion (Embratur) indicate that, between January and May, almost half of foreign visitors in Brazil were Argentine: 2.2 million in total, representing a 96.8% increase compared to the same period in 2023.

As a result, several local airlines added new routes and increased flight frequencies to meet the high demand. Rio de Janeiro, São Paulo, and Búzios are among the most popular destinations.