Key facts
- The reform could increase the tax burden on airline tickets to about 26.5% from roughly 9%.
- Domestic ticket prices may rise by 16.1% and international fares by 13.3%, according to IATA.
- IATA estimates a 21% annual fall in passenger traffic, equivalent to 25 million fewer passengers.
- Leisure travelers are expected to be most affected by the tax increase.
Brazil's airline industry is concerned that an impending consumption tax reform could lead to higher fares and a decrease in passenger numbers. The reform, approved in 2023 and set to be implemented gradually from 2027, aims to replace multiple existing taxes with a dual value-added tax system. However, uncertainty surrounding the upcoming presidential election, with a runoff between frontrunner Flavio Bolsonaro and incumbent President Luiz Inacio Lula da Silva, has created apprehension. Bolsonaro has indicated a desire to revise the reform, particularly the expected VAT rate, which industry executives estimate could increase the effective tax burden on tickets from approximately 9% to 26.5%. This could result in a significant rise in ticket prices and a substantial drop in passenger traffic, impacting tourism and cargo transport. Airline lobby group IATA has urged the government to consider a delay or a reduced rate for the aviation sector, highlighting its economic importance. LATAM Brasil CEO Jerome Cadier noted that leisure travelers would bear the brunt of the increased taxes, as corporate travelers might be able to claim tax credits.