Calculation base under debate in Tax Reform could increase government revenue – 10/19/2023 – Market

With the promise of keeping the tax burden in the country neutral, the Tax Reform, currently being processed in the Senate, could win a rule that, in practice, will increase the Union’s revenue at a time when the federal government is looking for more revenue.

The PEC (proposed amendment to the Constitution) that changes the taxation system for goods and services left the Chamber with the prediction that the so-called reference rates will be reviewed annually, to avoid increasing the burden.

Now, the Senate’s Tax Reform rapporteur, Eduardo Braga (MDB-AM), plans to establish a calculation to arrive at an average tax burden in recent years in the country.

One of the senator’s concerns is to correct any distortions caused by specific measures each year. Examples of these are the exemptions granted by the Jair Bolsonaro (PL) government on the eve of the election — when the measures were mainly aimed at fuels.

The senator wants to use a calculation that considers the five taxes to be merged by the reform (PIS, Cofins, IPI, ICMS and ISS). Opting for the average would be a way to mitigate the risk of fluctuations. The senator has discussed the topic with the Ministry of Finance and the TCU (Federal Audit Court).

Considering only the reform taxes, the burden represented 12.01% of GDP (Gross Domestic Product) in the 2022 election year — which would make the post-reform burden more limited if this were the chosen reference. In 2021, for example, the percentage was higher: 12.85%.

The variation may seem small, but it represents a difference of R$14 billion — already adjusted for inflation —, which could have a significant impact on public coffers.

The 2021 and 2022 numbers are in IRS reports and are the most recent available on a comparable basis. The country’s total tax burden was 33.71% of GDP in 2022 and encompasses all revenue from the federal government, states and municipalities. In 2021, it stood at 33.05% of GDP.

In this case, each 0.1 percentage point represents almost R$10 billion. Thus, the average of the last three years, for example, would allow us to raise almost R$30 billion more than the average of the last ten years.

The rapporteur’s idea at the time, according to reports heard by the Sheetis to stay in a middle ground for the chosen period of time, which would cover before, during and after the pandemic — which requires a period of at least four years (2019 to 2022).

This Thursday (19), Braga stated that the Senate will approve a lock for the cargo.

“There is a consensus among senators that the text, and the legacy that the Senate will also bring to this text, is that we will have a very clear and explicit halt to the tax burden in the text that will be approved,” he said.

According to him, limited revenues should require a review of spending by the government, including civil servants, in order to seek balance in public accounts. “[Isso] will impose a reverse administrative reform in the country”, he stated.

Last week, the rapporteur also said that he is trying to find a “reasonable” equation to ensure that there is no increase in the load.

“I have been working towards achieving this reasonableness because we have to have, on the one hand, balance with the taxpayer. And that’s why we want to reduce the tax burden, to have neutrality from the point of view of the tax burden”, he said.

“And, on the other hand, we have to look at the productive sector and ensure that there are investments, job creation and income. This is the balance of tax reform. Now, everyone wants some type of benefit. And the math doesn’t add up “, he stated.

The objective of the reform is to simplify the Brazilian tax system. To do this, it creates two VATs (Value Added Tax): a federal contribution (CBS) and a state and municipal tax (IBS) on goods and services.

They will result from the merger of PIS, Cofins and IPI (federal taxes), in addition to ICMS (state) and ISS (municipal).

The sum of the rates of the two is estimated at 25%, with some products and services having a reduction of 60% (10%, in this case) and others will be exempt or have a different collection system.

Almost 600 amendments have already been presented to the proposal, the majority creating exceptions to the rules, which increase the rate of both taxes to compensate for the loss of revenue.

Another point under discussion is the tax benefit for automakers to set up shop in the North and Northeast — defended by President Luiz Inácio Lula da Silva (PT) himself. Braga’s proposal is to link the temporary maintenance of the exemption to the green transition.

The report must be presented by November 1st, and voted on at the CCJ (Constitution and Justice Commission) on the 7th.

The expectation of the president of the Senate, Rodrigo Pacheco (PSD-MG), is to put the topic to a vote in the House’s plenary session by the 9th.

With the changes, the PEC will return to the Chamber of Deputies. Braga has sought to align the main changes with the rapporteur in the Chamber, Aguinaldo Ribeiro (PP-PB), and the president of the House, Arthur Lira (PP-AL).

One of the biggest changes will be made within the scope of the so-called Federative Council. According to the text approved by federal deputies, the council’s idea is to collect part of the VAT amounts and distribute it to states and municipalities.

Braga defends that the council be transformed into a “management committee”, along the lines of the Simples Nacional Management Committee — which has a much more limited function, of regulating only certain aspects provided for in the legislation related to the topic.

Braga received this Thursday the suggestions made by a working group of senators from the CAE (Economic Affairs Commission) and said he will evaluate them.

Furthermore, the minister of AGU (Attorney General of the Union) provided the rapporteur with a document with proposed changes to the text.

Among them, reaffirming the competence of the STF (Supreme Federal Court) to judge possible conflicts between federative entities or between them and the Federative Council. According to the Braga team, all contributions will be analyzed.