Brazil’s sin tax in the hands of Congress
The landmark tax reform passed by the Brazilian Congress in December last year includes the proposal of substituting the federal excise tax (IPI) for a “sin tax” on products and imports that are harmful to people’s health or the environment, such as alcoholic beverages, smoking products, and mineral goods.
Effects of a sin tax. A 2021 study reviewed the literature on the effects of Latin American countries adopting sin taxes. Over 80 percent of studies flagged a reduction in harmful goods consumption, as well as positive effects on revenue generation (71 percent of studies) and health outcomes (82 percent).
Context. The reform changes the country’s Byzantine consumption tax system, consolidating five multi-tiered taxes into two VAT-like rates: one at the federal level (CBS) and one for states and municipalities (IBS).
- It also gradually changes the system’s logic, from origin-based sales taxation to a destination-based system — meaning that taxes will be collected where the buyer is located or where the product is headed, rather than where the business is headquartered.
State of play. In late April, Finance Minister Fernando Haddad delivered the House a 356-page draft with legal definitions and other minutiae. That first package is being discussed by a seven-member working group before it goes to the lower house floor, meaning all lobbyists have their sights on them.
- A second set of regulations regarding the redistribution of the tax revenue among states was also delivered to Congress in early June.
- The sin tax, however, is among the details of the first package.
What the government says. The bill sent by the government lists polluting vehicles, vessels and aircraft, smoking products, alcoholic and sugary drinks, and mineral...
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