Under discussion in Brazil for 30 years and considered the main challenge of the economic agenda of the first year of the Lula government, the tax reform (PEC 45/2019) reached another stage this Wednesday (8) November. The Senate Plenary approved the proposal in the first round, with 53 votes in favor and 24 against and no abstentions. 49 votes in favor were required (3/5 of the House's composition).
The proposal presented by deputy Baleia Rossi (MDB-SP) gained new contours in the hands of the Senate rapporteur, Eduardo Braga (MDB-AM), who incorporated a series of changes. The essence of the PEC is the simplification of taxes and the model in operation in the country. The text provides for the replacement of five taxes (ICMS, ISS, IPI, PIS and Cofins) with three: Tax on Goods and Services (IBS), Contribution on Goods and Services (CBS) and Selective Tax (IS). The proposal also provides for exemptions for basic food products and a series of other measures.
The rapporteur highlighted that the proposal will not represent an increase in the tax burden. The text provides a “lock” for the collection of taxes on consumption, that is, a limit that cannot be exceeded.
— The taxpayer cannot continue to support the burden of the state. If the fear is that approval of the PEC will lead to an increase in the tax burden, we are convinced that the model guarantees that this will not happen — said Braga.
In total, the text received around 830 amendments during the discussion in the Senate. Braga accepted part of the suggestions for changes proposed in the Plenary.
The government leader in Congress, senator Randolfe Rodrigues (Rede-AP), stated that the approval of the PEC is “historic” and that it will guarantee a reduction in taxes for the poorest population. He highlighted that the text provides for a zero rate for rice and beans and other items in the basic food basket. He countered criticism from the opposition by stating that previous governments supported tax reform, but changed sides:
— This is what we are voting for: reducing taxes. Now, I also understand why the opposition today does not want the tax rate on meat in the basic food basket to be reduced to 0%. They are upset because Brazilians, after President Lula's government, started eating picanha again. From a tax rate currently weighing 34%, we, with the institution of VAT, will have a tax rate of 22% to 27.5% — said Randolfe.
When he used the acronym VAT, the senator was referring to Value Added Tax, which is how this type of tax on consumption has been named over the years during successive discussions.
The main criticism from opposition senators was the excess of sectors and products that will be subject to different regimes from the general rule of the future VAT. The opposition leader, senator Rogerio Marinho (PL-RN), stated that the reform will in practice increase the tax burden for the majority of the population. According to the senator, the proposal was “disconfigured” and is far from simplifying the current model.
— Those who were better able to shout, to fight, to make the lobby work are included in the project on screen. Those who did not have this strength or this care will be forced to bear a tax burden – surprise me, gentlemen – that will be the largest in the world. We are talking about a very serious matter, on which there is no impact study. What we have, in fact, is the prospect of a VAT higher than 27.5% — said Marinho.
Among the sectors that will have different regimes according to the text are transport, fuel, sanitation, health plans, real estate, prediction games, lotteries, financial institutions and banks. When rejecting amendments to remove sectors from this list, the rapporteur reinforced that they already have differentiated regimes and pay a lower tax burden than the national average.
For senator Oriovisto Guimarães (Podemos-PR), who presented a substitute rejected during the vote in Plenary, the tax system will become even more complex during the transition period, because the current taxes will coexist with the new ones. He also warned about the risks of the reform for the federal balance. According to him, states and municipalities will lose revenue
—What are we going to have? Governors with saucers in their hands, who no longer have the capacity to receive their own tribute and who are left in the hands of a management committee or federal council. What will we have? Mayors with saucers in their hands, who can no longer have their ISS – criticized Oriovisto.
VAT
CBS (federal) and IBS (state and municipal), which tax consumption, are forms of Value Added Tax (VAT). It only applies to what was added at each stage of the production of a good or service, excluding amounts paid in previous stages. VAT is already adopted in more than 170 countries. The idea is to end the incidence of “cascade” taxation.
Taxes and exemptions
There will be a standard rate and a differentiated rate to cover sectors benefiting from exemptions such as education and health. The text also provides for exemption from IBS and CBS for a national basic basket of products to be defined in a complementary law. The idea is that products such as rice, beans, among others, are exempt from taxation.
Cashback
With the aim of reducing income inequalities, the text also provides for the refund of part of the tax paid by consumers, the so-called “cashback”. The measure applies to low-income families and includes the consumption of gas, electricity and other products.
As the load increases, the text provides for a “lock” on the collection of taxes on consumption, that is, a limit that cannot be exceeded. According to the text presented by the senator, the limit for the tax burden will be the average from 2012 to 2021, in proportion to the Gross Domestic Product (GDP), represented by revenues from PIS/PASEP, COFINS, IPI, ISS and ICMS.
Tax War
With the reform, tax collection will no longer be made at the origin (place of production) and will be made at the destination (place of consumption). The change aims to put an end to the so-called fiscal war – the granting of tax benefits by states with the aim of attracting investment.
“Sin Tax”
Unlike the IBS, the Selective Tax, also known as the “sin tax”, will function as a type of “extra tax” on goods and services that are harmful to health and the environment. This is the case with cigarettes and alcoholic beverages.
Compensation
The National Regional Development Fund (FNDR) is one of the instruments included in the PEC to reduce discrepancies between Brazilian states. The fund's resources will be contributed annually by the federal government. From R$ 8 billion in 2029, the values should reach R$ 60 billion in 2043. Of the total, 30% will be distributed to the states based on population criteria and 70% based on a coefficient of their participation in the States Participation Fund (FPE).
Source: Senado Agency.
