Tax reform can make system “fairer and more efficient”, says CLP

The preliminary report on the tax reform, presented on Tuesday (6) by the thematic Working Group (GT) of the Chamber of Deputies, may make the tax system fairer and more efficient, in the assessment of the Center for Public Leadership (CLP).

In the report, read by Deputy Aguinaldo Ribeiro (PP-PB), WG rapporteur, guidelines are presented that will form the basis of a proposed amendment to the Constitution (PEC) to change the Brazilian tax system. Among the main lines is the creation of a dual Value Added Tax (VAT), with a federal instance and another state and municipal responsibility.

The tax would replace the current IPI, PIS, Cofins, ICMS and ISS. To compensate for tax collection losses with the transition between the current and the new model, a Regional Development Fund (FDR) would be created, which would ensure the distribution of resources to federal entities.

The report also cites the need for differentiated rates and special regimes, speaking specifically about the maintenance of the Manaus Free Trade Zone and Simples Nacional. There would also be a Selective Tax (IS) of an extrafiscal nature, to regulate the market in certain sectors, and a “cashback” system, with the return of taxes to more financially vulnerable families.

In a technical note signed by Daniel Duque, manager of technical intelligence, and Pedro Trippi, coordinator of technical intelligence, the CLP points out that the proposal “represents a significant and necessary step towards transforming the Brazilian tax system”.

“The implementation of the dual Value Added Tax (VAT) and excise tax is a notable advance over the current system, and the maintenance of the Manaus Free Zone through a more streamlined and efficient model indicates a willingness to preserve strategic tax agreements ”, say the authors of the document. “In addition, the introduction of a tax on luxury vessels such as yachts demonstrates the intention for a more equitable tax distribution.”

The entity also understands that differentiated VAT rates for sectors with high social impact and the tax refund model for low-income families show an effort to make the tax system more progressive. “The creation of the Regional Development Fund, in turn, is a positive step towards mitigating tensions between the different entities of the federation”, they write.

“However, like any ambitious proposal, the effectiveness of this reform will depend on its proper implementation, close monitoring and ongoing adjustments to ensure it meets its targets and promotes a more efficient and fair tax system for all Brazilians.”

Read the full CLP technical note.