Return to the population does not match the second highest consumption tax in the world, tax experts say

The Finance Ministry’s most recent estimate for VAT — which combines the CBS and the IBS — would place Brazil behind only Hungary, which has a reference rate of 27%, the highest in a ranking of around 170 countries.

A lawyer specializing in tax law, Ranieri Genari says that the tax burden on consumption of goods and services in Brazil is similar to that charged in northern European countries. However, these countries provide significantly better quality of life to their citizens, he compares.

“It is 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 tax 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 does not see a tax rate of 26.5% as justifiable. “Taxation in Nordic countries is high, but we can see that there is not as much dissatisfaction among the population as there is here in Brazil. There is a strong perception in Brazilian society that there is no effective return on the taxes that are paid,” she says.

Wrong principles

According to Genari, the tax reform currently underway in Brazil should not be neutral from a revenue collection perspective, i.e., maintain 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 is based on the premise that the government cannot reduce revenue based on what already exists. Of course, there is a budgetary issue involved, of the government’s fiscal responsibility, but, based on this premise, you already understand that no revision should be made to what already exists. You just make a change,” he criticizes.

The expert also disagrees with the number of sectors that will receive different treatment under the new tax system, such as exemption or reduction in the VAT rate. “We have a wide range of exceptions that current taxes already allow for and, in my opinion, the reform is preserving a lot of things that it shouldn’t preserve,” he says.

For Katia, amid pressure from various sectors to include them in special 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 positive to include a ceiling for the rate in the text, but the way it is written, for example, there is no penalty or coercive instrument for this rate adjustment to be made. There is a lack of elements to make this lock more effective,” she points out.

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 should increase if the rate that everyone else pays exceeds the established ceiling.

Tax reform: find out how the lock on the maximum rate of new taxes will work

Transparency

Experts point out that one positive aspect of the ongoing reform is the transparency of the new system, something that is lacking in the current model. “This reform is revealing to everyone, not just consumers, but those in the middle of the (production) chain, wholesalers, retailers, how much tax is included in the price that is being charged, something that we do not have today,” says Genari.

Katia agrees. “When we receive a receipt for a product we bought, we can’t have a clear idea of ​​how much tax is represented in that receipt, and the trend with tax reform is that we can actually see how much tax we are paying.”

PLP 68/2024 will go to the Senate. If it is approved with amendments, it will return to the Chamber of Deputies. If not, it will go to the President for approval.