Brazil's complex and inefficient tax system is known worldwide. In addition to a heavy tax burden, the tax compliance costs that companies must bear in order to do business in the country are particularly high compared to Brazil's peer countries. This is also the case for the healthcare sector. However, there are specific cases of tax exemption, 0% tax rates and other exceptions which aim to reduce the final price of pharmaceutical products, devices and equipment. Several of these rules add to the complexity of Brazil's puzzling tax system.

When considering the amount of taxes in the healthcare sector, it is worth bearing in mind that the financing of pharmaceutical products is 70% out of pocket. This means that consumers pay taxes on essential products, which in turn are even more expensive for the poorest parts of the population. In addition, the tax system has more than five different indirect taxes applicable at various rates over these essential products.

Moreover, as the different levels of the government are the largest buyers of healthcare products, it is hard to understand why this heavy taxation is imposed on this sector, as it makes the public health system even more expensive to taxpayers in a country whose Constitution guarantees full coverage for the entire population.

Tax burdens: impact on healthcare system ICMS One of the reasons for why the healthcare system faces heavy tax burdens is the country's tax system. Take the value added tax system (ICMS), for example. This state value added tax (VAT) applies to operations related to the circulation and import of products. ICMS is a major source of revenue for most Brazilian states and, with a few exceptions, the states need to agree on harmonised rules and regulations to create exemptions to or reductions of the ICMS rates. In light of this, 27 states have entered agreements exempting a wide range of imported healthcare equipment, oncological products and pharmaceutical products from ICMS. These exemptions fall under the scope of the Popular Pharmacy Programme – the federal programme to distribute and sell certain subsidised pharmaceutical products to the population.

Economic crisis The economic crisis is another factor which led to the high tax rates, as states and the federal government rely on tax revenue derived from healthcare products. For example, it took significantly longer to conclude a recently amended ICMS agreement between the states because Rio de Janeiro had enacted a law forbidding the creation of new tax exemptions.

Other taxes In relation to other taxes, such as import duty, the legislation foresees 0% rates or temporary exemptions. In some cases, the Mercosur countries must agree on those exemptions and observe the commitments of members before the World Trade Organisation. While import duty is not the main cost imposed on pharmaceuticals and health products, it may be significant when considering manufacturing activity. To some extent, the legislation aims to protect local manufacturers, but it is possible to obtain exemptions mainly when the local industry cannot supply capital goods.

Other federal taxes include excise tax (IPI) and federal gross sales contributions (PIS/COFINS), which have specific rates and regulations. The IPI rates consider the essentiality of the products; therefore, they do not impose a heavy burden on the healthcare sector. On the other hand, PIS/COFINS levies are high for healthcare products, but tailor-made regulations reduce the burden on specific listed products (the so-called 'negative list'). The problem here is that the government does not update the list of exempted products, which makes newly launched patented products more expensive.


In all, the Brazilian model could follow that of developed countries, in which simpler rules generate savings for both the public healthcare system and – especially – the population. The example of the United Kingdom, in which the VAT is not applied to prescription drugs, would not only reduce the price and expand access to healthcare, but also simplify Brazil's tax system.

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