Brazil’s Tax Reform: Saving Lives While Raising Revenue

This article explores Brazil’s potential to transform its health and fiscal landscape through proposed excise tax reforms on tobacco, alcohol, and sugar-sweetened beverages. Based on the World Bank’s report, the article outlines recommendations to reduce preventable diseases and generate revenue by aligning with global best practices.

Brazil is poised to tackle two pressing challenges—public health and fiscal sustainability—through a landmark reform in excise taxes on tobacco, alcohol, and sugar-sweetened beverages (SSBs). The report "Saving Lives While Raising Revenue," published by the World Bank, highlights how these reforms could align the country with global best practices while addressing significant health and economic burdens.

The Health and Fiscal Imperative

Tobacco, alcohol, and SSBs are among the leading contributors to preventable diseases in Brazil, accounting for over 20% of all deaths annually. Tobacco alone is responsible for more harm than alcohol, with disabilities and chronic conditions placing immense pressure on public health systems. The financial toll is staggering, with costs to treat illnesses caused by these products far exceeding the revenue currently collected through health taxes.

At the same time, Brazil’s excise tax rates for these products rank among the lowest in Latin America and the G20. Cigarettes, for example, are priced at just one-third of the regional median, making them highly affordable. Alcoholic beverages and SSBs follow a similar trend, with low tax rates failing to reflect their public health impact.

Proposed Tax Reforms

The report emphasizes that Brazil’s ongoing tax reform, guided by the draft Complementary Law (PLP 68/2024), provides a crucial opportunity to implement meaningful changes. Key recommendations include:

Tobacco Taxes: The introduction of uniform, high specific taxes indexed to inflation and income growth. This approach aims to reduce affordability while generating substantial revenue.

Alcohol Taxes: Taxation based on alcohol content to discourage excessive consumption. Higher-alcohol products would face steeper taxes to address their disproportionate health risks.

SSB Taxes: Specific taxes that vary with sugar content, encouraging consumers to shift towards healthier beverage options.

Lessons from Global Examples

The report draws on successful international case studies to underscore the importance of well-structured tax systems. In South Africa, steady increases in tobacco taxes led to significant declines in smoking prevalence and associated health conditions. Chile and Australia demonstrate how automatic indexation of taxes to inflation preserves their effectiveness over time.

Conversely, Vietnam’s reliance on ad valorem taxes for tobacco serves as a cautionary tale. The system’s inability to significantly raise prices led to continued affordability and rising consumption of cheaper brands.

Overcoming Implementation Challenges

Addressing illicit trade is critical to the success of these reforms. Brazil has one of the highest rates of illicit cigarette sales globally, undermining the impact of current taxes. Strengthening enforcement mechanisms, improving tax administration, and enhancing international cooperation are key steps to mitigate this issue.

Additionally, the report highlights the need for robust monitoring and evaluation systems to assess the impact of tax reforms on consumption patterns, health outcomes, and revenue generation. This data-driven approach will inform future policy adjustments.

Recommendations for Success

To maximize the health and fiscal benefits, the report advocates for:

Prioritizing specific taxes over ad valorem taxes to ensure meaningful price increases.

Regularly adjusting tax rates for inflation and income growth to maintain their real value.

Expanding the scope of taxation to include all harmful products, such as high-alcohol spirits and sugar-sweetened milk.

Establishing mechanisms to monitor and evaluate the effects of tax changes.

Brazil stands at a pivotal moment to enact reforms that could transform its public health landscape while strengthening fiscal sustainability. By adopting the recommendations outlined in the World Bank’s report, the country can reduce preventable diseases, address income inequality, and generate much-needed revenue. This dual impact—saving lives while raising revenue—offers a compelling vision for Brazil’s future.