Tax Reform and Selective Tax on Tobacco in Brazil [Working Paper Series]

This Working Paper was written by Universidade Católica Brasília (UCB) in Brazil. The working paper analyzes the impact of alternate selective tax rates in the context of Brazil's ongoing comprehensive tax reform on cigarette prices, consumption, tax revenues, and tax burden. Assuming a value-added tax of 27%, the ad valorem rate of the selective tax should be set to at least 171% to reach current total tax collection. Some states, however, would lose revenues in this scenario. The researchers find that a selective tax of 232% would be necessary to ensure that no individual state loses revenue. Overall, this higher tax rate would decrease consumption of low-price cigarettes by about 9% and increase tax collection by 4.3%. The working paper concludes with additional recommendations for the tax reform, including alternative tax structures for cigarettes with may result in higher revenues and larger decreases in consumption, as well as using tax revenues to support the public health system.

A Working Paper analyzing the impact of tax reform scenarios on alcohol can be found here.