Rethinking VAT Regressivity through a Progressive Cashback Mechanism

The authors argue in this article that VAT regressivity is not inevitable and that digitalized tax systems make it possible to correct it through a targeted cashback mechanism that implements the ability-to-pay principle, rather than relying primarily on reduced VAT rates. Using Brazil’s new VAT cashback model as the central example and Sweden as a comparative case, the authors show how redistribution can be shifted to the level of the final consumer while preserving VAT neutrality in the supply chain. It ultimately proposes that modern VAT systems should use digital infrastructure to better reconcile neutrality, fairness and social sustainability.