Brazil’s Senate has approved a tax reform bill that, if passed, could result in the world’s highest Value-Added Tax (VAT). The proposed bill aims to introduce a dual VAT system and replace five existing consumption taxes. While certain sectors such as fuels, hotels, events, education, and healthcare would benefit from reduced or zero VAT rates, the Brazilian Treasury Ministry’s initial estimate suggests a potential tax rate of up to 27.5% or even 28%. However, the bill does not establish a fixed VAT rate, leaving it to complementary legislation to determine.
If the scenarios presented by the Treasury and Institute of Applied Economic Research hold true, Brazil’s VAT would surpass that of all other nations. Currently, Hungary charges the highest VAT rate at 27%, while Andorra boasts the lowest at 4.5%. The global average VAT rate stands at approximately 15%, with regional averages ranging from 12% in Asia to 20% in Europe. It is worth noting that the United States uses state and local sales taxes instead of a national VAT, with an average rate of 6.6% in 2020. Meanwhile, the standard VAT rate for the European Union is 21%.
In the forex market, the US Dollar (USD) is demonstrating signs of strength against the Brazilian Real (BRL). At present, the USD is trading at R$4.90 against the BRL, with the potential for a short retracement to the 30-day exponential moving average at $4.97.
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