Reform: Braga inserts a block in the report to avoid an increase in the country’s tax burden

Reform: Braga inserts a block in the report to avoid an increase in the country’s tax burden


If the reference ceiling, based on the average revenue in relation to GDP, is exceeded, the new VAT rate will be reduced

BRASILIA – The speaker of the tax reformSenator Eduardo Braga (MDB-AM), included in his report a block to avoid increasing the country’s tax burden, already considered high by experts, with the modification of the consumption tax system.

The opinion, presented on Wednesday 25th, establishes a reference ceiling, based on average revenues in the period from 2012 to 2021, calculated as a percentage of GDP. If the reference ceiling is exceeded, the rate of the new Value Added Tax (VAT), which will be introduced with the reform, will be reduced.

In the text, Braga states that he has accepted the suggestion of the working group of the Senate Economic Affairs Commission (CAE) and that he has inserted the device “aimed at reconciling the important request of various sectors for the non-increase of the tax burden, to which we announced our support right from the start of the PEC procedures in the Senate.”

The block will work like this: in 2030, for example, the reference rate for new taxes will be reduced if the average revenue in 2027 and 2028 exceeds the reference ceiling (average revenue in relation to GDP from 2012 to 2021).

In the text, the rapporteur explains that he has opted for reference ceilings for collection rather than a maximum VAT rate, as was once thought, “to guarantee transparency in the number and eliminate seasonal effects”.

The tariff reductions will be calculated by the Federal Audit Office (TCU), based on information provided by the federated bodies and the IBS (state and municipal tax) management committee.

“We are firmly convinced that the taxpayer, as a consumer, cannot continue to bear the burden of the State. Consumption taxes are regressive and weigh more heavily on the shoulders of the poorest”, we read in the text. “Explaining, through the reference rate, at least the maintenance of the current burden will help citizens to mobilize against an increase in the burden of these taxes, asking governments for a commitment to austerity and spending control.”

In the text approved by the Chamber, the rapporteur Aguinaldo Ribeiro (PP-PB) had already inserted a type of block in the text to avoid increasing the load, but without specifying how this would happen. The opinion simply said that “the reference rates would be “reviewed annually in order to maintain the tax burden”.

What is the tax burden?

The tax burden is the ratio between the sum of public revenues (Union, States and Municipalities) and the Gross Domestic Product (GDP). In general terms, it is how much taxes are paid in relation to what the country produces.

This calculation seeks to analyze the flow of financial resources directed from the company to the Brazilian state. Stopping load growth is one of the main demands of entrepreneurs.

The function of this block, therefore, would be to calibrate the standard tariff to ensure that the load does not increase. In 2022, the tax burden reached 33.71% of GDP, the highest value in the historical series that began in 2010, according to the Treasury Ministry.

Source: Terra

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