Ipea study reveals that Brazil’s VAT could reach 28% and be the highest in the world

The tax reform approved in the Chamber of Deputies almost two weeks ago, and which still depends on analysis – and further modifications – in the Senate, will generate a Value Added Tax (VAT) that could become the highest in the world. This is what a recent study by Ipea (Institute for Applied Economic Research) reveals, based on the proposal approved by the deputies with all the exemptions and favored regimes based on the original text sent by the government to Congress.

The study “Tax Reform Proposals and their impacts: A comparative evaluation”, by researcher João Maria Oliveira, points out that the effective rate of the new tax on the consumption of goods and services can reach 28.4%, surpassing that of Hungary, 27%, currently the highest of its kind in the world.

The general rate has not yet been defined and will depend on a supplementary law after the tax reform project is voted on by the Senate. The initial expectation was that it would remain at 25%, but the changes made by the deputies raised the median expected by the government.

And even in this index, says Ipea, it would still be one of the highest rates in the world, similar to those of Denmark, Norway and Sweden. Countries that have had a similar recent tax reform, such as Australia and New Zealand, have fixed the rate between 10% and 15%.

The scenario pointed out by Ipea is similar to that mentioned by Minister Simone Tebet, of Planning and Budget, during a government event in Belo Horizonte last week. At the time, she said that the general VAT rate should be between 26% and 27%.

“The obvious conclusion is that the more exceptions offered, the higher the effective rate will be for those outside the exception,” Oliveira told the Newspaper.

The researcher stated that the incentives and benefits for the Manaus Free Trade Zone and Simples were the ones that weighed most in raising the expectation of the new VAT rate, in addition to the exceptions for some sectors, including transport.

However, even amid these exceptions, Ipea points out that the reform will make the Brazilian GDP (Gross Domestic Product) grow more than without it. The institute points out that the initial proposal by economist Bernard Appy, extraordinary secretary of Tax Reform at the Ministry of Finance, PEC 45, would make the Brazilian economy grow 5.7% by 2036 – the standard rate was 25%.

PEC 110, from the Senate, had a standard rate of 26.9% and would generate a growth of 4.8% until 2032. The current proposal in progress in Congress foresees an increase of 2.39%.

Appy said last week that the standard VAT rate should not exceed 30%, and that it will depend on the number of exceptions that are approved.

This value, however, may grow depending on the discussions in the Senate on the return of the parliamentary recess, in August, when the proposal begins to be effectively discussed. The Ministry of Finance is mapping items to discuss with senators and try to reduce pressure on the rate.