10th march 2024
Brazil´s Congress have approved a fiscal reform after many decades of dithering, negotiations and turnarounds.
The fiscal reform creates a Value Added Tax (VAT), the punitive tax on the “sinful products” and a basic basket of products exempt from taxation. This basket consisting of a basic food staples consumed by all Brazilians.
The rate will be around 27,5% of the sales price. This goes against the commonsense in the economist community who believe that punitive taxes increases evasion and removes capital from investing in the productive economy.
The tax system will be simplified, according to the government representatives, with federal taxes on revenues being consolidated around one tax.
State taxation will be shared with municipal taxation and the eventual revenue will be split between the two spheres of government.
The overall aim of this reform is to redistribute the collection of taxes from those states who produce more to those who consume more, meaning that there is expectation that those states with smaller industrial bases will benefit most from this reform.
This, of course, is a falacy. The productive states are also the states that consumes more, because of the wages paid to the employees being the power of the economy. The only exception is the Federal District, Brasilia, which receives a lot of salaries being the city that have the highest concentration of civil servants in Brazil.
The worst part of the reform is that about 90% of the details of how much and where the taxes are going to be collected were not defined in the project, creating a huge mystery that will continue to haunt Brazilians who already pays about 46% of their income in multiple taxes.