A Value Added Tax (VAT) of 26.5% will make Brazil the country with the second highest consumption tax in the world. Experts point out that, as well as being high, this level does not match the return given to the population through public services.
The Ministry of Finance's most recent estimate for VAT - which combines CBS and IBS - would put Brazil behind only Hungary, which has a reference rate of 27%, the highest in a ranking of around 170 countries.
Ranieri Genari, a lawyer specializing in tax law, says that the tax burden on the consumption of goods and services in Brazil is similar to that levied in northern European countries. However, these countries offer their citizens a significantly better quality of life, he compares.
"It's not the best level to be at, not only because of the tax rate, but also because we look at the rate of return that the countries that are first in these rates, such as Hungary, Denmark, Norway, Sweden, the Netherlands, mostly in Europe, have in terms of services for the population," he analyzes.
Katia Gutierres, a partner at Barcellos Tucunduva Advogados, believes that the population doesn't see a tax rate of 26.5% as justifiable. "Taxation in the Nordic countries is high, but we realize that there is not as much dissatisfaction among the population as there is here in Brazil. There is a great perception in Brazilian society that there is no effective return on the taxes that are paid," he says.
Wrong principles
According to Genari, the tax reform underway in Brazil should not be neutral from the point of view of collection, i.e. keeping the tax burden at the same level. For him, this would be a good opportunity for the country to review unnecessary spending and thus reduce the burden of taxes on taxpayers.
"The reform starts from the premise that the government can't reduce revenue based on what already exists. Of course, there is a budgetary issue involved, of fiscal responsibility on the part of the government, but from this premise, you already understand that there should be no revision of what already exists. You're just turning a switch," he criticizes.
The expert also disagrees with the number of sectors that will be treated differently under the new tax system, such as exemption or reduction in the VAT rate. "We have a wide range of exceptions that the current taxes already cover and that, in my opinion, the reform is preserving a lot that it shouldn't," he says.
For Katia, amid pressure from various sectors to include them in differentiated treatment regimes, setting a ceiling for the VAT reference rate - which cannot exceed 26.5% - is positive, but needs to be improved. "I thought it was a good thing to include a ceiling for the rate in the text, but the way it's worded, for example, there's no penalty or instrument of coercion for this rate adjustment to be made. There is a lack of elements to make this lock more effective," he says.
According to the complementary bill (PLP) 68/2024 - which details how the new tax system will work - in 2030, the Executive and the IBS Management Committee will be able to review benefits granted to some sectors if the VAT reference rate threatens to exceed 26.5%. In practice, the percentage of those who pay less tax will increase if the rate paid by everyone else exceeds the established ceiling.
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Transparency
Experts point out that a positive aspect of the current reform is the transparency of the new system, something that is lacking in the current model. "This reform is making it clear to everyone, not just consumers, but those in the middle of the [production] chain, wholesalers, retailers, how much tax is embedded in that price that is being charged, something that we don't have today," says Genari.
Katia agrees. "When we receive a bill for a product we've bought, we don't have a very clear picture of how much tax is on that bill, and the trend with the tax reform is for us to actually see how much tax we're paying."
PLP 68/2024 goes to the Senate. If it is approved with amendments, it goes back to the Chamber of Deputies. If not, it goes to presidential sanction.
Source: Brazil 61