Analysis

Brazilian Business and ongoing reforms

The Brazilian economy is currently undergoing structural changes that should affect its conjuncture and some important aspects of the business environment.

Learn more about Tax Reform and the main proposals under discussion.

Tax reform

Considered a priority by the government for the recovery of the economy, tax reform is under discussion in the House of Representatives and the Senate. However, the proposals analyzed by the two Houses are different. Generally speaking, the texts propose to simplify tax collection by unifying various taxes. The tax burden, however, would be maintained. What would change would be the form of collection, which would become consumption rather than production, as well as the redistribution of funds raised. However, as the changes affect many sectors and the impacts vary according to the regions of the country, there is no consensus on the issue among parliamentarians. The debate is expected to gain even more momentum by sending the federal government a third reform proposal.

The tax reform proposals

PEC (Proposed Constitutional Amendment) 45/2019 (Chamber of Deputies)

1. What does it propose?

Replace five tributes:

• Industrialized Products Tax (IPI) - federal

• Contribution to the Social Integration Program (PIS) - federal

• Contribution to Social Security Financing (Cofins) - federal

• Tax on transactions relating to the movement of goods and services (ICMS) - state

• Services Tax of any kind (ISS) – county

2. How it looks

The five taxes are replaced by the Goods and Services Tax  (GST). The basis of calculation will be uniform throughout the country, but federative entities will have autonomy to set the rates, which will apply to all operations. Since each entity will have a tax rate, the final IBS tax rate will be the sum of federal, state, and municipal rates.

If, for example, the federal rate of IBS is 7%, the rate of the state of São Paulo is 11% and the rate of the municipality of Campinas is 2%, sales made in Campinas and to the municipality of Campinas will suffer IBS at the rate of 20%. The proposal also foresees the creation of a federal selective tax to focus on specific goods and services whose consumption is to be discouraged, such as cigarettes and alcoholic beverages.

3. Procedure

He has passed the CCJ of the House and is now working on a special committee made up of deputies. The rapporteur expects to approve his opinion in mid-October. If approved by the special committee, the proposal goes to the House floor, where it will have to go through two rounds of voting. Then go to the Senate.

PEC (Proposed Constitutional Amendment) 110/2019 (SENATE)

1. What does it propose?

Extinguish nine taxes:

• Tax on industrialized products (IPI) - federal;

• Contribution to the Federal Social Integration Program (PIS);

• Contribution to the financing of social security (Cofins) - federal;

• Tax on transactions related to the movement of goods and services (ICMS) - state;

• Tax on services of any nature (ISS) - municipal;

• Tax on Financial Operations (IOF) - federal;

• Server Heritage Training Program (Pasep) - federal;

• Education Salary (social contribution for program funding) - federal;

• Cide-Fuels (social contribution for transport infrastructure investment) - federal.

2. How it looks

They are created:

• A state-level value added tax, called the Goods and Services Transactions Tax (IBS);

• A federal tax on specific goods and services (Selective Tax), which will be levied on items such as oil and oil products; fuels and lubricants; cigarettes; electricity and telecommunications services.

Besides that:

• Extinguishes the Social Contribution on Net Income (CSLL), a tax paid by every legal entity. This tax will be incorporated by the Income Tax, which now has increased rates.

• ITCMD (tax paid on the transfer of any property due to death or donation), which is now the responsibility of the states and the Federal District, becomes federal competence, but with revenue destined to the municipalities.

• IPVA (motor vehicle ownership tax) now affects aircraft and vessels, but excludes commercial vehicles intended for fishing and public transport of passengers and cargo people with higher contributory capacity.

3. Procedure

Text was passed in a special House committee last year, but was not voted in plenary. This year, the same content was presented by a group of senators and now the proposal is in the Senate Constitution and Justice Commission (CCJ). If passed, it goes to the Senate floor, where it needs to be voted in two rounds. Approved, go to the House.

GOVERNMENT PROPOSAL

1. What do you propose

The content has not yet been released, but, according to the secretary of the IRS,

Marcos Cintra, should be based on three pillars:

• creation of a single tax

• Income Tax reformulation

• implementation of a contribution on payments (CP), along the lines of the extinct Provisional Contribution on Financial Movement (CPMF).

2. How it looks

The proposal has not yet been announced, but, according to Revenue Secretary Marcos Cintra, it should be based on three pillars:

• Creation of a tax on goods and services

• Income tax restructuring;

• Institution of a tribute along the lines of the CPMF.

3. Procedure

The federal government will still send the text to Congress. Upon arriving at the Chamber, if approved by the CCJ, it will have to proceed with the PEC, which is already under discussion in the special committee.

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