Pending tax reform could make Brazil have the highest consumption tax in the world

Brazil’s upcoming tax reform is expected to introduce a consumption tax that could become one of the highest in the world.

Initially, a study suggested a base rate of 25% for the Value Added Tax (VAT).

However, recent changes to the tax reform have raised concerns that this percentage may increase even further.

These changes involve including more sectors in the list of industries subject to special regulations, which could lead to a higher VAT rate.

A survey conducted by Bichara Advogados and reported by O Globo newspaper compared VAT rates among member countries of the Organization for Economic Cooperation and Development (OECD).

The survey suggests that Brazil’s VAT rate might approach Hungary’s rate of 27%, currently the highest among OECD countries.

The tax reform aims to simplify Brazil’s existing tax system by consolidating five consumption taxes into a single value-added tax, a common practice in over 170 countries.

However, Brazil’s VAT will be dual, effectively comprising two taxes: the federal Contribution on Goods and Services (CBS), which combines IPI, PIS, and Cofins, and the subnational Tax on Goods and Services (IBS), which consolidates ICMS and ISS.

Compared to other countries, Brazil’s proposed VAT rate appears high.

Countries like Spain, Germany, the United Kingdom, and Chile typically have rates ranging from 19% to 21%.

The VAT rates of Hungary, Denmark, Norway, Sweden, Finland, Austria, Greece, Iceland, Ireland, Poland, and Portugal are also relatively high, ranging from 23% to 27%.

According to the Tax Foundation, 174 countries worldwide have adopted a unified consumption tax system, which helps reduce administrative costs.

Brazil’s tax reform includes introducing a potentially high consumption tax.

While the precise VAT rate is yet to be finalized, it could rival the highest rates observed in other countries.

The reform aims to simplify the current system and align Brazil with the global trend of adopting a unified consumption tax.

For the full picture, see our Brazil Tax Reform: Complete Guide.