The New Government Tax Reform Proposal: Limits of the Possible and Uncertainties Involved

ABSTRACT In late 1997, the Brazilian government announced the first version of a tax reform contemplating a complete overhaul of the indirect taxation in the country. Turn-over taxes were to be eliminated and the entailing loss of revenue compensated by a new federally coordinated broad-based VAT, that would replace the present incoherent state VATs and the largely mismanaged service tax imposed by local-governments. In this article, simulation models are used to study the consistency of the proposed reform and some of its possible consequences. A risk analysis framework is used to underline the most important uncertainties involved.