This tax reform is expected to result in a fairer and more transparent consumption tax, as well as a more competitive and investor-friendly economic environment in Brazil. This is the assessment shown in the results of a study by the Ministry of Economic Affairs of the Organization for Economic Co-operation and Development (OECD), which was announced on Monday (10th) this week.
The study “Reform of Brazil’s sales tax system” focuses on the issue of “double” taxes, or two new taxes with the same rules, and provides a detailed comparison of the Brazilian model with two similar international experiences, Canada and India.
For the authors, this reform “brings great promise for a fairer and more transparent consumption tax, as well as a more competitive and investor-friendly economic environment in Brazil.”
One of the highlights is the large number of tax incentives approved by parliament within the new regime and how this will work in the other two countries.
The authors of this work state that Brazil’s reforms have reduced the number of reduced tax rates and tax incentives. Nevertheless, the group recalls that studies based on other countries suggest that “reducing VAT rates is often an inefficient means of achieving these objectives and may in some cases be regressive.”
In addition, preferential treatment systems tend to increase administrative and compliance costs and can lead to economic distortions, which can undermine the efficiency and neutrality of the tax system.
The good thing about these three countries is that the exceptions that apply to specific products generally apply to both federal and local taxes, without making any regional distinctions.
Canada and India’s dual VAT model was an inspiration for Brazil, but the study says Brazil’s system has unique and innovative features, especially since it is taxed at three levels of government (compared to only two in the other two countries).
Therefore, a management committee is required. The Trustee will have functions beyond similar institutions in other countries, including the collection and allocation of IBS revenues. In the other two countries, this is done by the federal government, with some exceptions in the case of Canada.
Returning to their central point, the authors say this reform is necessary and long overdue, as Brazil’s current sales tax system is highly complex and distorted, negatively impacting economic growth and productivity, and causing some of the highest costs and significant litigation in the world.
The authors also refer to a transition (2026-2033) that will allow governments, businesses and consumers to gradually adapt to the new reality “without economic and financial shocks.”
Link exists: Did you like this text? Subscribers can access it for free up to 7 times a day from any link. Click on the blue F below.
About The Author
