Tax Reform and Split Payment

Abstract

This article examines whether the split payment mechanism introduced by Brazil’s consumption tax reform may mitigate or suppress the Olivera-Tanzi effect in public finance. It argues that segregating and collecting IBS and CBS at the financial settlement stage reduces the time lag between the taxable transaction and revenue inflow, preserving the real value of tax receipts under inflationary conditions. The study adopts a qualitative, documentary and normative approach, complemented by a quantitative simulation comparing scenarios with and without split payment. It concludes that the mechanism may suppress inflationary erosion in transactions subject to immediate collection, but not universally, since other collection methods, payments outside the system, gradual implementation, residual balances and effects on cash flow, neutrality and tax credits remain relevant.