International expert discusses importance of Value-Added Tax in tax reform

The role of Value-Added Tax (VAT) is critical to the success of a tax reform. To discuss the ideal design of a VAT, the Nucleus for Fiscal Studies (NEF) of FGV’s Sao Paulo Law School (Direito SP) invited Rita de la Feria, a professor from University of Leeds (England) and one of the world’s leading experts in VAT.

Portuguese by birth, Feria has worked in several VAT implementation projects, such as in the Portuguese reform in 2012, in its legal aspects, political narratives and technical approaches.

For the specialist, a peculiarity of the Brazilian tax system that needs to be addressed is the issue of the tax war between the states, which enforce different rates, and with a feature that, according to her, only exists in Brazil – taxation in the state of origin.

“A consumption tax system is efficient when it takes into account internal and external neutrality, without any kind of exemption, differentiated regime and with taxation at the destination of the goods. No matter where the plant is deployed, what’s important is to pay attention to consumption”, she said.

For Feria, Brazil has two advantages when implementing its own VAT system. The first is that it can learn from what worked and what did not work in other countries. The second is the extreme computerization of the Brazilian system, which facilitates tax collection oversight and fraud prevention.

One of the great advantages of a VAT-based tax system is that the tax allows a revenue increase. The expert reports that various countries in the Middle East, which have been losing revenue with falling oil prices in recent years, are investing in the consumption tax.

Finally, Feria says that internal isonomy requires a shift in mentality. “The VAT needs to be simple, not have difficulties in oversight or administration, and rely on a self-management process, in addition to not offering benefits, exemptions and unique tax rates for certain sectors”.

The Conference with professor Rita de la Feria ends the 2018 cycle of events that discussed the importance of a tax reform to the country. On November 5-6, the NEF organized an event to address the effects of the Introduction Act to Brazilian Law Rules (LINDB) in the modulation and interpretation of tax regulations in Brazilian law.

On the 26th, the NEF, within the scope of the Tax Reform Observatory Project, held the event “Normative Design and Tax Reform”, to discuss the legal structure of the new Goods and Services Tax (IBS) proposed by the Center for Fiscal Citizenship (CCiF) and that is underway in Congress. The presentation addressed 4 dimensions: taxable event of the IBS; non-cumulative character of the IBS; federal design for tax reform; and administrative tax procedure of the IBS.

Go to the website to see professor Rita de la Feria’s complete lecture.