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Is Brazil The Country With The Highest Tax In The World? Understand The Impacts Of The Tax Reform That Makes The Country Surpass Hungary And Have 28% VAT.
Is Brazil the country with the highest tax in the world? The regulation of the tax reform, sanctioned last Wednesday (16), provides for the creation of a Value Added Tax (VAT) with a rate estimated at about 28% in Brazil. This projection was presented by Bernard Appy, extraordinary secretary of the reform, positioning the country as one of those with the highest average tax burdens on consumption in the world. The goal of the VAT is to simplify the national tax structure, unifying taxes such as ICMS and ISS. However, experts warn that this high rate may impact the final price of goods and services, generating debates about its feasibility and economic competitiveness.
Tax Reform Also Receives Rate Constraint
With the rate, the country could surpass the tax rate applied in Hungary (27%), thus taking the “pole position” on the podium of the highest taxes in the world. However, during its first passage through the Chamber of Deputies, the regulatory text gained a new mechanism that should prevent the scenario where Brazil is the country with the highest tax in the world.
This is the rate constraint, a device that serves to do exactly what the name suggests: to prevent the tax of the general tax reform from exceeding a certain level. In this case, the threshold is 26.5%.
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The end of a classic document caused a short circuit in the Receita Federal, and now over 1 million tax returns are stuck in the Income Tax audit due to errors that are not the taxpayers’.
The average taxpayer, when faced with this number, is generally shocked by the expected weight of the taxes after the reform. However, the purpose of the tax reform and the constraint is to ensure that the current tax burden does not increase or decrease.
The Brazil is the country with the highest tax in the world and, during the processing of the regulatory project of the tax reform, a series of exceptions and special regimes were applied to the collection of VAT. According to Appy, the inclusion of exceptions during the Senate processing was what weighed the most for the average burden to go from 26.5% to the estimated 28%.
Understand The Sanctioned Text For The Tax Reform
During the process, the rapporteur, Senator Eduardo Braga (MDB-AM), sought to embrace, partially or fully, about 600 of the changes proposed by legislators.
The secretary states that the changes that most impacted the rate were rejected when the text returned to the Chamber of Deputies. However, he acknowledges that the final tax should be slightly higher than estimated during the first passage of the project through the hands of the federal deputies.
It is worth mentioning that Brazil is the country with the highest tax in the world. Thus, President Lula sanctioned, with 17 vetoes, the complementary law project that regulates the tax reform. The proposal establishes rules regarding the new taxes created by the reform, the Contribution on Goods and Services (CBS), which is federal, and the Tax on Goods and Services (IBS), which has state and municipal competence.
Gradually, CBS will replace PIS, Cofins, and IPI, while IBS will be charged instead of ICMS and ISS. The project also defines details about the Selective Tax (IS), known as the “sin tax,” which applies to items considered harmful to health and the environment.
Understand The Impacts Of The Tax Reform
Brazil is the country with the highest tax in the world and, for companies, adapting to the new rules will be like entering a game of chess. According to experts, tax planning will become one of the biggest competitive differentials. Therefore, there is a huge race for efficiency, and the entrepreneur who masters the data, understands tax residues, and anticipates price adjustments will come out ahead.
Consumers will also not go unscathed. The promise of fairer prices in the production chain may stumble on cost pass-throughs in the short term. The issue of increasing working capital, for example, is an underestimated challenge. Companies will need liquidity to adapt, and this may have repercussions on the final product prices.
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