Brasilia (Reuters)

Lawmakers in Brazil's lower house of Congress approved a bill on Tuesday necessary for implementing constitutional tax reform, following a Senate vote.

The proposal will now go to President Luiz Inacio Lula da Silva for his signature.

The bill establishes rules to consolidate five existing taxes into a single consumption levy, also known as a value-added tax (VAT), with distinct federal and regional rates.

It also details a new tax on products deemed harmful to health or the environment, including cigarettes and alcoholic beverages. Lawmakers reinstated sweetened beverages to the list after they were removed by senators.

Lawmaker Reginaldo Lopes, the bill's rapporteur in the lower house, stated that changes will set the overall consumption tax rate at 26.5%.

This much-anticipated tax reform, approved by lawmakers last year, is a key element of Lula's strategy to enhance productivity and economic growth in Latin America's largest economy. Previous administrations have attempted but failed to enact their own tax reforms.

Lula's government has also proposed a separate bill requiring Senate approval to regulate how VAT would be managed at the state level.