Tax reform holds the promise of a more competitive and investor-friendly economic environment in Brazil, in addition to fairer and more transparent consumer taxes. This is the assessment found in the work of the Economics Department of the Organization for Economic Co-operation and Development (OECD) released on Monday (10).
The study “Reforming the Consumption Tax System in Brazil” focuses on the issue of “double” taxation – that is, two new taxes that will have the same rules -, with a detailed comparison between the Brazilian model and two similar international experiences: Canada and India.
For the authors, the reform “holds great promise for a more competitive and investor-friendly economic environment in Brazil, as well as fairer and more transparent consumer taxes.”
One point highlighted was the large number of tax benefits Congress approved under the new system – and how that plays out in the other two countries.
The authors of the work say that the Brazilian reform reduced the number of reduced rates and preferential tax regimes. However, the entity notes that studies conducted in other countries indicate that “reduced VAT rates are often an ineffective means of achieving these goals, and can be regressive in some cases.”
Moreover, preferential systems tend to increase administrative and compliance costs and can create economic distortions, undermining the efficiency and impartiality of the tax system.
The positive point in the three countries is that the exceptions that apply to a particular product, in general, apply to both the federal tax and the subnational tax, without creating territorial distinctions.
Although Canada and India’s dual VAT models served as inspiration for Brazil, the Brazilian system has unique and innovative characteristics, according to the study, particularly because it is imposed at three levels of government (in the other two countries, there are only two).
Hence the need for a management committee, which would have functions beyond similar bodies in these other countries, such as collecting and distributing IBS revenues – in the other two countries, this is done by the federal government, with some exceptions in the Canadian case.
Returning to the central point, the authors state that reform was necessary and long overdue, as Brazil’s current consumption tax system is overly complex and distorted, harms economic growth and productivity, generates costs that are among the highest in the world and leads to significant litigation.
The authors also address the transition phase (2026-2033), which should allow the government, businesses and consumers to gradually adapt to the new reality “without economic and financial shocks.”
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