Itaú BBA - How can the tax reform lift economic growth in Brazil?

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How can the tax reform lift economic growth in Brazil?

August 4, 2020

A structural Tax Reform can increase 4.2% of Brazil’s GDP per capita


For the version with all charts and tables, please open the attached pdf file
 

• The high degree of tax complexity in Brazil produces damaging effects on economic growth due to high transaction costs and enormous legal uncertainty. A well-designed tax system is usually associated with more businesses being opened, more economic formalization and, therefore, more economic growth in the long run.

• The first stage of tax reform proposed by the government aims to replace PIS/Cofins with a tax that is more similar to a VAT (known as CBS), simplifying calculation and reducing some of the tax litigation that is prevalent in Brazil. However, PIS/Cofins has a modest role in the tax problem, so gains would be greater with a revision of other taxes, at all levels of the federation.

• A tax reform in Brazil that drives convergence to the global average in the Paying Taxes index of the World Bank’s Doing Business report could lead to a 4.2% increase in GDP per capita in the country, compared with a scenario of no reform. It should be noted that, given the country’s fiscal imbalance, a reform should only address the simplification of the tax structure without considering reductions in the tax burden in the short term, although this would be desirable in the medium term.
 

Claudia Bruschi and Pedro Schneider
 

For the version with all charts and tables, please open the attached pdf file



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