Tax reform working group kicks off discussions

Tax reform secretary Bernard Appy told lawmakers on Tuesday that Brazil’s recently approved landmark tax reform will help the economy grow by an additional 10 percentage points over the next several years.

“The tax reform has a very positive impact on economic growth,” Mr. Appy said in a House public hearing. “The growth sparked by the reform does not happen in the short term, it will take place over the next 10, 12, 13 years … we are talking about a potential growth of over 10 percentage points in Brazil’s potential GDP.”

The end of cumulative taxation alone, Mr. Appy added, will boost the country’s gross domestic product by 5 percentage points.

Mr. Appy, a longtime defender of reform on Brazil’s consumption taxes, also said the reform would reduce pressure to increase the tax burden.

As The Brazilian Report has explained, the Luiz Inácio Lula da Silva administration carefully devised a VAT rate and public discourse in order to place on Congress the political burden for any increase in the tax rate.

The government’s proposed benchmark VAT rate will be around 26.5 percent — close to Hungary’s 27 percent rate, the highest among members of the OECD, the so-called “club of rich countries.” This leaves Congress very little room to add tax breaks to specific sectors of the economy, as it would increase the burden on others and hence verifiably make Brazil have one of the highest tax rates in the world.

The tax reform, approved in a constitutional amendment...