Tax reform and the end of tax wars: destination-based taxation as a simplification tool

Abstract

This article analyzes the relationship between the structure of the Brazilian tax system and the occurrence of so-called tax wars, with an emphasis on taxation at the origin and its effects on competition between federative entities. It begins with the observation that consumption taxes, such as ICMS (State VAT) and ISS (Municipal Service Tax), when partially collected at the origin, encourage the granting of tax benefits as a strategy to attract investment, generating economic distortions, legal uncertainty, and loss of revenue collection efficiency. In this context, the impacts of the tax reform proposal introduced by Constitutional Amendment No. 132/2023 are examined. This amendment establishes the Dual Value Added Tax (VAT) model, composed of CBS (Contribution on Goods and Services) and IBS (Integrated Sales Tax), and adopts the principle of destination-based taxation. The methodology adopted is deductive, based on a literature review on tax reform, complemented by documentary and bibliographic research techniques. The study shows that the change in the collection criterion tends to mitigate tax wars, promote greater tax neutrality, and simplify the system. However, it also points to challenges related to preserving federal autonomy, the possibility of new forms of fiscal competition, and the need for transitional mechanisms to ensure balance between entities. It concludes that the reform represents significant progress, but its results will depend on proper regulation and implementation.