Haddad contests 28% VAT rate estimated by Ipea study

The Minister of Finance, Fernando Haddad, refuted this Monday (17) a study by the Institute of Applied Economic Research (Ipea), according to which the future Value Added Tax (VAT) would reach 28%, higher than the 25 % initially foreseen in the tax reform, because of the exceptions included during the vote by the deputies.

Haddad said the study did not consider a number of factors. “That is a study that does not take into account a series of factors. There is no impact analysis, for example, on [combate à] evasion, evasion, cut of tax expenses [eliminação de incentivos fiscais]”, said Haddad upon arriving at the Ministry of Finance this Monday morning, reported Agência Brasil.

Based on the text approved by the Chamber of Deputies, the Ipea study estimates a 28.4% rate for VAT. The tax foreseen in the consumption tax reform will be shared between the Union, states and municipalities. This percentage would guarantee the highest rate in the world for taxes of this type, breaking the record of Hungary, which charges VAT at 27%.

On the possibility of the rate being below 28%, the minister said it was necessary to evaluate two factors. The first is the transition, which will begin in 2026 for the Contribution on Goods and Services (CBS), the federal part of the future VAT, and will run until 2032. “We will calibrate this according to the transition. So start in 2026 with a low rate to see the impact,” he said.

The second factor, cited Haddad, will be possible changes in the tax reform by the Senate, which may review some exceptions granted by the Chamber. With fewer exemptions and sectors with reduced rates, the general rate may decrease.

On the 13th, the extraordinary secretary for tax reform, Bernard Appy, stated that the standard VAT rate should not exceed 30%. The definition of the standard rate will be made by means of a complementary law, after approval by Congress.

Despite contesting the 28.4% rate estimate, Haddad considered the weightings made by Ipea positive and defended a downsizing of the reform, with the revision of the list of exceptions. “The warning that the Ipea study makes is good, because it shows that the more exceptions there are [a reforma tributária], less will work. So you have to calibrate the exceptions well, so that they are well justified ”, he pointed out.