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Brazil's tax reform promises to transform the tax system with the creation of a VAT, but it has raised controversy by including potentially record rates and excluding weapons from the selective tax. The proposal seeks simplification, but faces criticism over exemptions that could compromise tax fairness. Is this the solution or a new burden for the economy and consumers?
Nothing is so bad that it cannot get worse. The phrase, although full of pessimism, seems to echo the fear of experts and sectors of the economy in the face of the current scenario of tax reform underway in Brazil.
According to CNN Brazil channel, the Federal Senate recently approved the basic text of the reform, but the project still faces important challenges before its final sanction.
The proposal, which seeks to simplify the complex Brazilian tax system, returns to the Chamber of Deputies due to the various changes made by senators.
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Among the main measures, the implementation of the Value Added Tax (VAT) stands out, which will replace federal and state taxes.
However, the VAT rate has not yet been defined, and estimates suggest that it could exceed 28%, possibly reaching 29%.
If confirmed, Brazil will have the highest VAT rate in the world, surpassing that of Hungary, which is currently 27%.
This possibility raises questions about the impact of the new tax model on competitiveness and the cost of living in the country.
Why can VAT be so high?
According to experts interviewed by CNN Brasil, the main factor putting pressure on the VAT rate is the special regimes and tax exemptions granted to certain sectors.
These benefits reduce the burden for some areas, but force an increase in the overall average to maintain revenue.
Professor Tathiane Piscitelli, from FGV Direito SP, highlights that, although the reform bring principles such as simplification and neutrality, the exemptions included in the text may compromise its effectiveness.
“This list [of exemptions] cannot be indiscriminate.
Exceptions must be consistent with the constitutional values of tax and social justice,” he said in an interview with CNN Money.
Criticism of the exclusion of weapons from the Selective Tax
Another controversial point is the Senate's decision to exclude weapons and ammunition from the so-called Selective Tax (IS), popularly known as the “sin tax”.
According to Tathiane Piscitelli, this measure will result in a 70% reduction in the taxation of revolvers, increasing the weight of the general tax rate for the whole of society.
The expert warns that the decision transfers the costs associated with armed violence to the population. “It is time to pressure senators to avoid this setback,” she said in a statement.
Positive impacts of tax reform
Despite the controversies, experts recognize that the reform can bring significant advances.
Studies by the Independent Fiscal Institution (IFI) indicate that tax simplification has the potential to reduce costs and attract investment.
Today, Brazilian tax litigation represents around 70% of the Gross Domestic Product (GDP), while in the United States this figure is only 1%.
For Marcus Pestana, president of IFI, The reform improves the business environment and corrects distortions in a system that he classifies as regressive, bureaucratic and expensive.
He emphasizes that the rate could be lower if there were fewer exceptions, but recognizes that the approved project is what is possible within the political context.
Sectors celebrating the reform
Some sectors of the economy, such as real estate and services, celebrated the benefits provided by the reform.
Entities such as the Brazilian Chamber of the Construction Industry (CBIC) and the Brazilian Association of Real Estate Developers (Abrainc) highlighted the reduction of rates for the Manaus Free Trade Zone and the favored regime for the oil refining industry in Western Amazonia.
The Federation of Industries of the State of Amazonas (Fieam) argues that the reform reaffirms the strategic value of the region and protects 96% of the Amazon Rainforest.
In a note, the entity stated that “the regulation does not grant new prizes, it only preserves the mechanisms existing in the legislation”.
The concerns of the industrial sectors
On the other hand, federations such as Firjan, Fiemg and Fiesp criticized the benefits granted to the Manaus Free Trade Zone, pointing out risks to regional competitiveness.
According to Igor Rocha, chief economist at Fiesp, the measure violates the principle of equality and increases inequalities between states.
A more transparent system
Despite the criticism, economist Eduardo Fleury, in an interview with WW, highlighted that the reform will bring gains in efficiency and transparency.
According to him, a clear view of taxes will allow consumers and businesses to better understand the system and make more informed decisions.
The challenge of aligning expectations and reality
To understand the international context, it is worth noting that the implementation of value added taxes is not unprecedented. European countries have faced similar challenges when introducing VAT systems.
In Germany, for example, the process was gradual and accompanied by adjustments to prevent the tax burden from compromising consumption and investment.
In the United States, although there is no national VAT, states that adopt similar systems face problems such as regressivity, which can disproportionately impact low-income families.
Experts point out that Brazil, when adopting VAT, will need to balance revenue collection and tax justice to avoid repeating the mistakes of other countries.
The transition and short-term impacts
One of the biggest challenges is the transition to the new model. Businesspeople and representatives of the production sector warn that adapting to the new rules will require investment in technology and training.
Small and medium-sized companies may face greater difficulties, given their lower capacity to absorb additional costs.
According to the National Confederation of Commerce (CNC), the complexity of the current system is already one of the main obstacles for the retail sector.
With the reform, tax unification is expected to reduce tax disputes between states, but the lack of clarity about the final rate still generates uncertainty.
An opportunity to modernize Brazil
Despite the challenges, tax reform represents a unique opportunity to modernize the Brazilian tax system.
Countries like Canada and Australia have shown that well-structured reforms can boost economic growth and simplify tax administration.
The question remains: how do you evaluate the tax reform proposal? Leave your opinion in the comments!
Well-structured reforms can boost growth.
This is not the case in Brazil, where any and all government actions are populist and only seek future votes.