## Brazil's VAT Reform: Improving Equity

_IMF Working Papers, June 26, 2026_

## Source details

**Canonical URL:** [Brazil's VAT Reform: Improving Equity](https://www.imf.org/en/publications/wp/issues/2026/06/26/brazil-s-vat-reform-improving-equity-577310)

## Other formats

- [Markdown version](/en/publications/wp/issues/2026/06/26/brazil-s-vat-reform-improving-equity-577310/index.md)
- [Structured JSON version](/en/publications/wp/issues/2026/06/26/brazil-s-vat-reform-improving-equity-577310/index.json)
- [Bundle manifest](/en/publications/wp/issues/2026/06/26/brazil-s-vat-reform-improving-equity-577310/bundle-manifest.json)

## Bibliographic details
- Authors: Ana Cebreiro Gomez, Christina Kolerus
- Published: June 26, 2026
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798229052634.001

---

### Overview
- Reform approved in 2023 with the primary objective to eliminate distortions and reduce the complexity of the current consumption tax system while maintaining revenue neutrality.
- Specific design features included to alleviate the VAT’s inherent regressivity and improve the equity of the Brazilian tax system.
- Assessment uses a microstatic model based on household data and simulates policy options to further improve distributional outcomes.

### Key findings
- The new VAT achieves a fairly equal distribution of the tax burden across most income groups, but the poorest still carry a heavier load in terms of their disposable income.
- Dissecting the impact by policy instrument:
  - The reform’s approved reduced rates aggravate regressivity.
  - Zero rates and the new cashback lower the tax burden for poorer households, under the revenue neutrality assumption.
- Combined use of reduced rates, zero rates, and cashback dampens the reform’s equity outcomes somewhat because a higher VAT reference rate is required on all other items to maintain revenue neutrality.
- Some equity improvements stem from the reform’s implied pivot towards taxing services.
- Simulations show that focusing on and expanding the cashback could amplify equity gains by raising the poorest disposable income by 25 percent via reductions in their tax liability.

### Distributional analysis and mechanisms
- Microstatic modeling based on household data is used to estimate the reform’s expected equity print and to simulate alternative policy options.
- Equity effects are decomposed by policy instrument (reduced rates, zero rates, cashback) to identify which elements lower or raise regressivity under the revenue neutrality constraint.
- Revenue neutrality implies an offsetting higher VAT reference rate on items not receiving relief, affecting net distributional outcomes.

### Policy simulations and recommendations
- Expanding and focusing the cashback is highlighted as a policy option with large equity potential:
  - Simulation result: raising the poorest disposable income by 25 percent via reductions in their tax liability.
- Trade-off identified: using multiple relief instruments (reduced rates and zero rates plus cashback) reduces regressivity of targeted items but necessitates a higher reference rate elsewhere, partially offsetting equity gains.
- Pivot toward taxing services contributes to equity improvements and should be considered in policy design and implementation.

### Publication metadata (selected)
- Authors: Ana Cebreiro Gomez, Christina Kolerus
- Date: June 26, 2026
- Series: IMF Working Papers, Working Paper No. 2026/132
- Pages: 33
- DOI: https://doi.org/10.5089/9798229052634.001
- ISBN: 9798229052634

*Source: Brazil's VAT Reform: Improving Equity, IMF Working Paper No. 2026/132.*

---

## Content in this bundle

- **Working Paper**
  - [Working Paper (Markdown version)](/-/media/files/publications/wp/2026/english/wpiea2026132-source-pdf.pdf.md){rel="alternate" type="text/markdown"}
  - [Working Paper (PDF)](/-/media/files/publications/wp/2026/english/wpiea2026132-source-pdf.pdf){rel="external" type="application/pdf"}

---

_Source: https://www.imf.org/en/publications/wp/issues/2026/06/26/brazil-s-vat-reform-improving-equity-577310_