Page 12 - ENGLISH MONTT GROUP, MAYO 2024

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a very high vat
The combined rate would be 29.88 percent, 18.77 percent for regional governments through the IBS and 11.11 percent for the federal government through the CBS. If implemented, this VAT would be the highest in the world, almost three pointspercentages above Hungary, the highest rate today.
•The last characteristic of the tax reform addresses the first phenomenon. The main rate will apply to all consumption (with a small but substantial list of exceptions) and will be collected where it occurs, not where the good or service was obtained. The idea is to end spatial or sectoral differentiation. This is especially relevant since goods considered non-tradable enjoy on average a lower effective rate than tradables (4.7 percent compared to 10.8 percent of gross production in 2019), and tax exemptions are a generalized tool for regional development in Brazil.
national Development Fund
•Perhaps the most controversial modification was the extensive list of favored sectors with a 60 percent lower rate. Other amendments include a federal fund to honor previously granted tax exemptions until 2033 and maintaining special tax status for goods produced within the Manaus free trade zone.
•To end the protests of the representatives of some states, the federal government guaranteed that the tax revenues of both these and the municipalities will not fall below the average recorded between 2022 and 2026.
•The National Regional Development Fund (FNDR) will be created, which will have resources injected annually by the federal government and will distribute 0.6 percent of the GDP to the states according to population and per capita income measures. The latter is aligned with the overall goal of reducing inequality by adopting a distribution pattern that favors relatively poorer states per capita and will represent 70 percent of the fund’s money.
Source: Bloomberg
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