Brazil Will Have the Highest VAT Rate in the World at 28.6%

Brazil is moving toward implementing a new value-added tax (VAT) rate of 28.6%, which would make it the highest standard VAT rate globally. The proposal is part of an ongoing tax reform aimed at addressing the country’s complicated tax system while increasing revenue collection to meet pressing fiscal demands.

Context of the Proposed VAT Rate

Brazil has long been criticized for its overly complex tax structure, with numerous overlapping taxes imposed at federal, state, and municipal levels. The proposed reform seeks to consolidate several existing taxes into a single VAT system.

While this move promises to simplify tax collection and reduce administrative burdens, the proposed rate of 28.6% has sparked debate due to its potential economic and social consequences.

La Cámara de Diputados de Brasil ha aprobado una reforma tributaria que fija el Impuesto al Valor Agregado, IVA, en una tasa máxima del 28,6%, convirtiéndose en la más alta del mundo.

Su implementación será gradual, con una entrada en vigor prevista para 2033. pic.twitter.com/BU9jqjWJfN

— Noticiero El Salvador 🇸🇻 (@NoticieroSLV) December 13, 2024

Comparison with Global VAT Rates

Currently, Hungary has the highest standard VAT rate in the world, standing at 27%. Denmark and Sweden follow with rates of 25%. If Brazil’s proposal moves forward, its 28.6% VAT rate would not only surpass Hungary but also set a new global benchmark for standard VAT rates.

Countries with high VAT rates often use this mechanism to fund extensive public services. However, Brazil’s context differs significantly from these countries, where the higher tax burden is balanced by robust social safety nets and economic stability.

President Luiz Inácio Lula da Silva has voiced concerns over the proposed 28.6% VAT rate, making it clear that his government does not support raising taxes. He argued that Brazil has enough potential revenue if tax collection is managed properly. Lula plans to work with Finance Minister Fernando Haddad to review the Senate’s adjustments to ensure the reform is fair and effective.

The highest VAT rate in the world is currently in Brazil, with a rate of 28.6%.
This tax reform was recently approved by the Brazilian Congress under the administration of Lula da Silva.#Brazil #VAT pic.twitter.com/0uRYeEY2Og

— 〽️ (@realmisiva) December 14, 2024

Speaking publicly for the first time since his recovery, Lula said, “We do not want to increase taxes in this country. Brazil already has enough revenue when taxes are collected correctly.”

The proposal raises concerns about its impact on the economy and society. Officials must decide if this approach can increase revenue without harming economic stability or worsening inequality. A clear strategy will be needed to ensure this reform works in practice.

Many observers believe the decision is effectively final, with Brazil set to implement the tax reform that will raise the VAT to an unprecedented 28.6%.

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