In a historic move, Brazil’s congress is set to decide on a new ‘sin tax’ aimed at goods and imports proven harmful to human health and the environment. This proposal is part of a sweeping tax reform passed in December of last year, which substitutes the existing federal excise tax (IPI) with the new ‘sin tax’. The targeted items under this new tax system span across alcoholic beverages, tobacco products, and particular mineral goods.
‘Sin taxes’, typically levied on goods detrimental to society’s wellbeing, have shown substantive results in Latin American nations. Comprehensive research in 2021 illuminated that more than 80% of these countries documented a marked decline in consumption of harmful goods after implementing sin taxes. Positive repercussions were also noted on revenue generation, found in 71% of studies, and health outcomes which were mentioned in 82% of conducted inquiries.
This reform simplifies Brazil’s complex consumption tax structure by merging five multi-tiered taxes into two Value-Added-Tax (VAT) rates. One applies at the federal level (CBS) while the other is expected to affect states and municipalities (IBS). A significant shift is set in motion as the tax system edge towards a ‘destination-based’ approach from an ‘origin-based’ one; taxes will be collected based on where the buyer is located or the intended place for the product instead of the seller’s place of business.
In late April, Finance Minister Fernando Haddad introduced a substantial draft of 356 pages containing legal definitions and finer details, to the House. Present discussions around this draft are held by a seven-member working group, thus becoming an inevitable focus of all lobbyists. A second set of regulations, concerning the redistribution of tax revenue among the states, was delivered to Congress in early June. Interestingly, it is within the first legislative parcel that the sin tax finds its detailed prognosis.
According to the government, the proposed bill would impose taxes on polluting vehicles, vessels, and aircraft, tobacco products, alcoholic and sugary drinks, and mineral goods. The final decision hangs in the hands of Congress, casting a spotlight on these discussions and their implications for consumers and manufacturers alike.
