VAT: Is reform coming?
The Government has announced that a major tax reform is under study, with the aim of achieve a drastic reduction in the amount of taxes, a simplification of the tax system , pivoting on the elimination or reduction of so-called distorting taxes.
These include the gross income tax ( GIT ) and municipal taxes , specifically the health and safety tax, whose respective tax bases overlap. In particular, the GIT has a cascading effect, as it applies to all activities, from production to final consumption, so the price of the final product is affected by the sum of all the taxes levied at each stage.
The issue requires in-depth analysis, consensus building, and adequate coordination across all three levels of government.
The VAT reform, which aims to replace the IIB and municipal taxes, seeks to lower product costs and simplify administration. According to reports, the reform would propose a super VAT or dual VAT, which would have an impact at the national, provincial, and municipal levels.
In this way, the Nation would receive a basic VAT, which would be around 9%, while the provinces and municipalities would have an additional, whose rates will be set by the provinces, thus incentivizing free competition among them.
The reform requires many technical clarifications, such as the impact of interjurisdictional transfers other than the destination, for which the doctrine offers various solutions.
Another important issue, impacting revenue collection, is the different situation in the provinces, where the IIB can reach 80% of revenue collection. To this end, compensatory mechanisms are required.
In Brazil , the recently approved reform proposes two consumption taxes: one federal, called the Contribution on Goods and Services (CBS), and another local (state and municipal), called the Tax on Goods and Services (IBS), hence the name "dual VAT." These taxes complement each other in a Selective Tax (IS), with the VAT rate estimated at around 28%.
Beyond applying a higher rate, as would also be the case in our country, it is worth noting that the tax impact on the total price of products should decrease, as a result of the tax debit and credit mechanism.
It is necessary to establish the issue and achieve the necessary political consensus for the approval of the changes that would result in the elimination of distorting taxes .
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