Brazil considers value added tax

Brazilian state and federal finance officials met recently with experts from the Forum of Federations to discuss the workings of fiscal federalism in Brazil, focusing on the possible adoption of a new dual Value Added Tax (VAT) for Brazil.

In the discussions, which brought together more than 100 senior Brazilian officials, the Vice Minister of Finance, Bernard Appy, explained that the new tax would be collected at the final destination, when the finished good is sold or the service rendered, rather than during intermediate steps. This, he said, would correct the serious economic distortions associated with Brazil’s current tax and generate additional revenues for the government resulting from reduced leakages in the system. A key issue in winning agreement to the reform will be resolving the implications for revenue sharing with the states and related issues of enhanced regional development policies. Forum President George Anderson and Australian federalism expert Roger Wilkins were invited to participate in the meeting because of extensive work the Forum has done with the Fiscal Forum of the Brazilian States – FFBS.

They agreed that the proposed tax measure was a significant improvement in policy terms though they recognized the challenges in achieving agreement. They thought the current post-electoral context in Brazil might offer a valuable, but limited window, for pushing for a new regime.

The event was organized by the Secretary of Revenue of the State of Rio Grande do Norte in the context of a meeting of National Council of Treasury Policies (Conselho Nacional de Política Fazendária). Officials from the State Fiscal Forum also presented proposals on the VAT and Equalization. The presentations are available in Portuguese and English.

Other Forum of Federations activities in its March 26 to March 30, 2007, mission to Brazil included:

  • Meetings with Dr. Vicente Trevas, Deputy Minister of Federal Affairs of the Presidency; Ambassador Marco Antônio Diniz Brandà£o the Head of Federal Affairs in Brazil’s Department of Foreign Affairs (AFEPA); and Directors from the Forum’s partner institution, the Institute for Applied Economics in Brasilia (IPEA);
  • A working lunch with the diplomatic corps of federal countries in Brasilia;
  • A Global Dialogue meeting on the role of cities and metropolitan areas in federal countries;
  • Discussion with Mayor Fernando Pimentel of the city of Belo Horizonte and Vice Governor Sr. Augusto Anastasia of the state of Minas Gerais; and
  • Discussions with the Governor of Rio Grande do Norte about fiscal reform, regional development policies and management of natural resources.

Presentations from Brazil events: