The more exceptions, the higher the VAT rate, says Appy

The base rate of the Value Added Tax (IVA) approved in the tax reform by the deputies could rise a few percentage points, surpassing the initial estimate of 25%, if there are new sectoral exemptions added by the senators, who will still vote on the matter. The country is thus heading towards one of the highest VAT rates in the world, closer to Hungary, with 27%, than to Chile (19%), Japan (10%), France (20%), Germany (19% ) or England (21%).

“Every exception increases the rate. This will have to be a discussion that, in the Senate, I hope will be very informed”, evaluates the extraordinary secretary of Tax Reform of the Ministry of Finance, Bernard Appy, in an interview with the newspaper Folha de S. Paulo.

For Appy, the ideal would be for Brazil to “basically adopt the list of exceptions that is standard in the rest of the world, which includes the most politically important: health, education, food”. The text approved by the Chamber, however, already extended the right to pay only 40% of the full rate also for the sectors of public transport, agricultural inputs and national artistic and cultural productions.

Secretary celebrates “simpler system”

“If there were no exceptions and with this tax evasion reduction, we would have a rate well… It could be less than 25%. Clearly less than 25%”, said Appy, adding that he does not intend to say what the Senate should or should not change, but, “if you ask me what I would like to be different, I would say that I would like less exceptions from the point from a sectorial point of view”. Even so, the secretary sees a “brutal advance” with the replacement of an “absurdly complex” rule by another that, even with exceptions, “is a simpler system than the current one”.

Despite the fear of some governors that the rate could exceed 30%, Appy believes that this will not happen. The text of PEC 45/2019 will be analyzed and voted on by senators in the coming weeks.