The Brazilian Tax System: A Diagnostic Review and Reform Possibilities

This paper reviews the state of Brazil’s tax system and discusses reform options that could raise additional revenue to finance social protection. It consists of three parts. The first part reviews the tax burden in Brazil and its impact on social spending, with particular attention to the identification of the most widespread distortions. The second part presents the analysis and the reform recommendations in detail, examining each individual component of indirect taxes on goods and services and direct taxes on payroll, income, and wealth. This section also includes a comparison of the estimated revenue losses or gains resulting from a set of reform measures with two primary objectives: correcting of current distortions and restoring tax progressivity. Finally, the paper briefly discusses issues related to the political economy of tax reforms.