Tax Reform and Equivalent VAT: Implications for Public Pricing

Abstract

The tax reform enacted through Constitutional Amendment No. 132/2023 promotes a profound reorganization of consumption taxation in Brazil by introducing a dual Value Added Tax (VAT) model. Although literature has emphasized its macroeconomic and federal implications, analyses of its effects on public pricing remain scarce. This article examines how the transition to dual VAT affects the modeling of the Benefit and Indirect Costs (BDI) used in public infrastructure contracts. The study adopts a qualitative and institutional approach, combining analysis of the reform’s regulatory framework with conceptual modeling of the tax variable embedded in public price formation. It argues that full non-cumulativity shifts the analytical focus from the sum of nominal tax rates to the effective net tax burden borne by contractors. As a methodological contribution, the article proposes the concept of Equivalent VAT (VATeq), defined as the residual share of the dual VAT effectively embedded in revenues after the compensation of tax credits generated along the production chain.