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Brazil's Temer eyes minor tax reform as pension overhaul stalls

BRASILIA, July 18 (Reuters) - With corruption charges delaying his unpopular proposal for the overhaul of Brazil's costly pension system, President Michel Temer is trying to quickly push through a mini tax reform, a presidential aide told Reuters on Tuesday.

The simplification of the PIS/Cofins federal social security contributions levied on gross receipts would face easier passage in Congress and allow Temer to show his wavering allies that his administration is still advancing on its promised reform agenda.

"There won't be the political environment to approve pension reform until the issue of the charges is out of the way," said the aide, who requested anonymity because he was not authorized to speak publicly on the matter.

Federal prosecutors charged Temer last month with taking bribes. Though his government is confident it has the backing in Congress to stop a trial by the Supreme Court, that support could melt away if his administration is seen to be paralyzed.

In a video statement released on social media on Monday, Temer said tax reform was a priority and a bill would be sent to Congress in "very little time." He has held talks this week on the tax reform with his economic team and a series of lawmakers.

Temer pointed to approval last week of a measure modernizing Brazil's labor laws as a sign his government is still working.

"We know it is difficult to pass pension reform. It is clear there is no climate for that now," said Lucio Vieira Lima, the deputy leader of the ruling PMDB party in the lower chamber of Congress.

The tax measure will be sent to Congress after the two-week recess that began on Tuesday, the aide said.

It will not tackle the more complicated levies in Brazil's burdensome tax system, the ICMS tax on circulation of goods and the ISS tax on services. These are vital sources of revenue for cash-strapped local governments and any attempt to change them could be political dynamite for Temer at this moment.

(Additional reporting by Lisandra Paraguassú; Writing by Anthony Boadle; editing by Diane Craft)