A study by the Organization for Economic Cooperation and Development (OECD), released this Monday (10), provides positive references about Brazilian tax reform. According to the document The Reform of Brazil’s Consumption Tax System (The Brazilian Reform of the Consumption Tax System), the reform should make the economic environment more competitive and favorable to investors. 
“This reform represents great promise for a more competitive and investor-friendly economic environment in Brazil, in addition to fairer and more transparent consumption taxation”, says the text.
The document highlights that the reform introduces a completely new and modern Value Added Tax (VAT) system, which will replace the five main consumption taxes currently applied at federal and state levels. The new system will consist of a dual VAT, formed by federal VAT, and state and municipal VAT, both governed by the same rules.
“Both components of the dual VAT system will be subject to the same rules regarding the definition of taxable persons, taxable transactions and tax-generating events, tax rate, exemptions and cases of non-taxation, tax credits on inputs and specific and favored regimes”, says the text.
The text also praises the reform for determining that both federal, state and municipal VAT must share the same calculation base. “Neither the federal government nor states and municipalities will have the autonomy to change or adopt a different basis. This has the potential to significantly reduce the complexity of the current system and eliminate many of the distortions associated with it.”
The document also highlights that, for the new tax system to function properly, it will be necessary to establish a standard understanding for all administrative instances of the rules on the two VAT models.
“For the success of Brazilian tax reform, it will be crucial to ensure consistency in the interpretation of the common rules applicable to the two VATs. Allowing each of the 27 states and 5,570 municipalities to issue individual regulations and interpretations would undermine the objective of the reform.”
