The plenary of the Senate votes this Wednesday (8) on the Proposal for Amendment to the Constitution (PEC) of the tax reform. The text, which proposes new rules for the tax system in the country, was approved on the eve (7) by the Committee on Constitution and Justice (CCJ) of the House, in the last stage before being considered by the senators. The intention is to conclude the vote on the same day, with the session starting at 2 p.m. Everything indicates that the proposal should not encounter obstacles, with the Senate maintaining the swift progress of the piece. Therefore, the prospect is for the approval of the tax reform, in two rounds, until this Thursday (9). In any case, if approved, the text will return to the Chamber of Deputies. After all, the proposal has undergone changes, with the rapporteur Eduardo Braga (MDB) accepting more than 30 amendments, which expanded the exceptions to the general rule of the future VAT (Value Added Tax). Senate’s plenary 03/03/2021 REUTERS/Adriano Machado Aware of this, Investnews has prepared a list of what is changing and has heard from experts to find out the positive and negative points of the measures. Check it out. What is being discussed?
In general terms, the tax reform provides for a simplification in the collection of taxes. Currently, there are five taxes, which would be replaced by only two, one managed by the federal government – the so-called CBS (Tax on Goods and Services) – and another shared between states and municipalities – the IBS (Tax on Goods and Services). “The tax reform aims to unify federal (PIS, COFINS and IPI), state (ICMS) and municipal (ISS) taxes. These are taxes that have the same incidence base (consumption), which justifies unification as a way to simplify the tax system, and, especially, the lives of taxpayers,” explains Carlos Marcelo Gouveia, partner in the tax area of Almeida Prado & Hoffmann Advogados. In his opinion, this proposal aims to reduce bureaucracy and make taxation more transparent. This is because, in general terms, both taxes are similar, concentrating the discussion of the reform, basically, with the creation of a regular dual system for the combination of five taxes. In addition, the reform aims to eliminate the accumulation of taxes throughout the stages of the production sector. The proposal is that each stage of production pay only the tax related to the value added to the product or service. At the same time, taxes will be charged at the final destination, where the good or service will be consumed, and no longer at the origin. With the simplification of the taxation rule and the creation of a single tax, it is
noticed the intention to make the tax system more attractive and competitive. On one hand, it reduces the cost to the consumer; on the other, it combats the so-called “fiscal war” between:
states for companies to set up in these locations. “The reform reduces the ability of states and municipalities to attract companies through the granting of tax benefits. The proposal also changes how much consumers pay for consumer products daily,” says Francisco Leocádio, tax partner at Souza Okawa. According to him, these provisions alter the economic viability of some companies. “Business groups will need to revisit where to install their factories, since with the end of tax benefits, it may no longer make sense to maintain an industry in a certain state,” ponders Leocádio. The reform provides for a standard rate, to be paid by taxpayers in general, but with three different regimes. The government’s economic team calculates something between 25.4% and 27.5% on the value of the product. However, this percentage has yet to be stipulated, in a regulation of the PEC. In addition, the rapporteur’s text includes more sectors in specific regimes. Among them: telecommunications services, sanitation services and concession of highways, travel and tourism agency and passenger public transportation. Another 13 sectors will have a 60% tax cut. Braga also created an “extended” basic basket, expanding the list of foods that will have a 60% tax reduction. Until then, this benefit only applied to sectors such as education and agricultural products. The rapporteur also created a specific rate with a 30% reduction for liberal professionals – such as doctors, lawyers and architects. In addition, some types of products and
services may receive specific treatments, such as fuels, lotteries and even sports activities carried out by Public Limited Companies of Football (SAFs). Braga also included the production of green hydrogen as an activity that may have a differentiated tax regime. According to the report, the maintenance of these benefits must be reviewed every 5 years. “Thus, the most benefited in this regard are the industries and service providers, who will have more security in their operations and a reduction in tax compliance costs,” evaluates Letícia Palmieri, a tax lawyer at Roncato Advogados.
Cashback and concessions: The rapporteur also maintained the possibility of creating, through a complementary law, the so-called “cashback”. This is a mechanism that provides for the refund of taxes to a low-income audience. However, the tax lawyer from Roncato Advogados emphasizes that until the taxation is equalized with the institution of “cashback”, taxpayers with lower income will suffer even more from taxation. This is because, despite the reduction in the cost of basic baskets, there will be an additional tax. In the text, Braga added that the refund will be mandatory in the supply of electricity and cooking gas to this portion of the population. That is, more concessions were made and new requests for differentiated tax regime were accepted, which brings doubts about the positive returns of the proposal. “Economically, the new exceptions should ensure that Brazilian VAT will be the highest in the world,” summarizes the economist at Ativa Investimentos, Étore Sanchez. Long way: The tax reform still has a long way to go until its effective implementation. In fact, according to the proposal, the transition period for the
unification of taxes will last seven years, starting in 2026. That is, only in 2033, the current taxes will be extinguished. Therefore, until then, Brazilian citizens and economic agents will have to live with a double tax regime. “The transition period will be a challenge in which the two regimes will coexist for many years. That is, before simplifying, there will be an increase in complexity,” says Leocádio. Therefore, in the short term, the positive impact is uncertain. “In terms of gains for the nation, it is expected that the positive return will effectively peak in the economy after the ‘tax simplification’, around 2033, when the transition period ends,” evaluates Sanchez, from Ativa. Besides, in addition to the transition period, there will be the need for numerous complementary laws that will need to be edited to viably, concretely, the measures that are being analyzed by Congress. “The tax reform is necessary, but coincides with a period of federal government revenue hunger, which can impact excessively on good intentions,” ponders Palmieri.
What changes with the text being voted on?
Who wins
– Services covered: education; health; public transportation; cultural, journalistic productions and sports activities.
– Products with reduced or exempt rates: medicines; medical devices and accessibility devices; basic menstrual health care products; sugar-free foods for human consumption; personal hygiene products; agricultural and livestock products
– Religious entities and charitable organizations with prohibition of tax collection
Who loses
– Owners of private jets, yachts and boats will have to pay property tax
– Progressive ITCMD taxation on inheritance or donation
– “Sin tax”: cigarettes and alcoholic beverages
– Low income: additional taxation on the collection of basic foodstuffs.
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