Tax reform terms: expert explains what tax regressivity is
Student Enzo Souza Araújo, who lives in Recanto das Emas, in the Federal District, was curious to know what tax regressivity is, a term that occasionally ends up appearing in the news related to the current tax collection system.
To answer this question, Brasil 61 interviewed international consultant Melina Rocha. She is director of courses at York University and an expert on Value Added Tax (VAT), a model adopted by more than 170 countries. Through the tax reform, Brazil tries to implement a VAT. In practice, IPI, PIS, Cofins, all federal taxes, would give rise to the Contribution on Goods and Services (CBS). In place of ICMS (state) and ISS (municipal), the Tax on Goods and Services (IBS) would be born.
According to the expert, the Brazilian tax system is regressive because people with lower purchasing power commit their income more to paying taxes on the consumption of goods and services than the wealthier ones.
Melina Rocha explains that this occurs because most of the items that low-income families consume have high rates, while part of the consumption basket of the richest have “undertaxed” products and services.
For her, the proposal for a broad-based VAT, that is, which would apply to most products and services, will bring more justice to the tax system. “By taxing all goods and services equally, there will be a redistribution of the tax burden, so as to be able to reduce the tax burden on goods and services that are primarily consumed by poor families. I think this is inevitable, very good and makes a redistribution in terms of more social equity”, he evaluates.
On the other hand, part of the goods and services that are currently taxed below the average would suffer from higher taxes. “This means that there is an increase in taxation of the richest family, because that service that it consumed, which was taxed at a lower rate, will now be taxed at a rate equal to other goods and services”, he adds.
The international consultant recalls that the reform provides for 60% lower VAT rates for sectors such as health, education and transport. In addition, the text exempts items from the basic food basket from taxes. The explanation is simple: food accounts for around 60% of the budget of low-income families, according to the IBGE.
Basic basket, industry and taxes: understand what changes with the tax reform
By Brasil 61
