Tax reform: VAT will not have a rate higher than 30%, says Appy

The standard rate of Value Added Tax (VAT) – a tax provided for in the consumer tax reform and which will be shared between the Union, states and municipalities – should not exceed 30%, said the extraordinary secretary for Tax Reform, Bernard Appy, in live made this Thursday (13) for XP Investimentos.

The definition of the standard rate will be made by means of a complementary law, after approval by Congress. Currently, among the more than 170 countries that adopt VAT, the highest rate is in Hungary, with 27%, and the lowest, in Andorra, with 4.5%.

One of the factors that will weigh in the definition is the number of exceptions to the standard rate that are approved. “The greater the number, the greater it will be,” said the secretary.

Another factor that will influence, according to Appy, is the “compliance gap”, the technical name given to revenue losses that take into account evasion, tax avoidance (a practice that takes advantage of loopholes in the law to reduce taxation) , disputes between companies and the tax authorities that end up being taken to court and defaults.

He believes that these losses will be reduced with the new tax system on consumption, which may enable a lower rate. “Simplification, for example, reduces tax avoidance”.

In the short term, the extraordinary secretary points out that there will be no reduction in the tax burden. Last year, it was 33.71% of GDP, according to the National Treasury.

Impacts on individuals

Appy says that individuals will be one of the main beneficiaries of the tax reform on consumption. One of the main gains is in relation to tax transparency.

“They will really know how much tax they pay. It expands fiscal citizenship and democracy. People will be able to demand better provision of public services”.

According to him, another aggregate gain that will only be visible in the long term is the reduction in prices motivated by the elimination of inefficiencies. “These costs will cease to exist”. An example is the structure that companies have to maintain to deal with tax issues.

He also emphasizes that there may be gains in quality of life, since the tax changes will facilitate investment, employment and income generation.