Cashback: Understand how it works in the tax reform – 05/28/2023 – Market

The tax reform proposals under discussion in Congress provide for the replacement of some exemption programs by refunding taxes to taxpayers, the so-called “cashback”.

This mechanism is used by countries like Canada, Uruguay and Colombia to ensure that the tax benefit actually reaches the citizen and is directed to the poorest. The model is also being tested in Rio Grande do Sul.

Returns can be made in real time, with the taxpayer identifying himself with the CPF number or using a social benefit card. It can be paid in advance, as a complement to Bolsa Família, for example. Another possibility is to return it later, as a kind of Nota Fiscal Paulista (SP) or Nota Legal (DF).

One of the ideas of the tax reform is to do away with virtually all exemption mechanisms by product. They would be replaced by a system in which the government charges everyone and returns the money to a taxpayer with certain characteristics (the poorest or to companies in a certain region, for example). It’s called personalized taxation.

An example of this is what the Ministry of Finance calls “people’s cashback”, which is the return of part of the new IBS (Tax on Goods and Services), which would be created by the tax reform.

According to the Treasury, the cashback model to be adopted will still be detailed to define who the beneficiaries are, what the return limit is, whether it will be restricted to some type of expense (food, education and health, for example) and also how refund will be given.

One possibility is to give cashback in a fixed amount to all Brazilians instead of exempting the basic basket, guaranteeing the full refund of the tax for the poorest and partial for the richest.

The basket exemption in the current format also benefits the richest and is not completely passed on to the consumer.

A 2021 study by the Pra Ser Justo movement, carried out together with researchers from UFMG (Federal University of Minas Gerais), pointed out that it is possible to use devolution to benefit more than a third of the Brazilian population with a budget lower than that of the exemption of the basic food basket. .

In Rio Grande do Sul, the Devolve ICMS program benefits CadÚnico (Cadastro Único) families with a monthly income of up to three minimum wages (R$3,960) or per capita income of less than half a minimum wage (R$660).

The return includes a fixed installment of R$100 each quarter to approximately 600 thousand families. There is also a portion that varies according to the volume of invoices with CPF requested by beneficiaries, which benefited 168 thousand families in the first quarter of 2023.