July 31, 2020 / 11:39 AM / 5 days ago

New Brazil VAT tax could generate up to 373,000 jobs - economy ministry

BRASILIA, July 31 (Reuters) - The creation of a new value-added tax in Brazil by combining two federal taxes paid by companies could generate up to 373,000 jobs, according to economy ministry estimates.

The new 12% VAT levy, which Economy Minister Paulo Guedes put forward to Congress last week, will combine the ‘PIS’ unemployment insurance contribution and ‘Cofins’ social security levy that companies currently pay.

It is the first part of the government’s wider tax reform agenda, which aims to simplify the country’s complex tax system and ultimately lower the overall tax burden.

According to Economy Ministry estimates published on Thursday, this could generate between 142,000 and 373,000 jobs, and increase overall productivity by 0.2% to 0.5%, depending on how mush compliance costs fall.

It could also boost per capita gross domestic product growth by up to 1%, the ministry estimated.

“The reform would bring efficiency gains, inasmuch as it reduces the variance of effective tax rates across sectors,” the ministry said.

“The effects may be even greater if we consider gains from the reduction of other economic distortions that taxes bring, such as effects on production chains,” it added. (Reporting by Marcela Ayres Writing by Jamie McGeever Editing by Marguerita Choy)

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