Companies are experiencing a moment of uncertainty regarding tax reform regulations – 03/25/2024 – Market

With just a few weeks to go before the tax reform regulatory projects are sent, companies, the financial market and tax experts are experiencing doubts surrounding the proposals of the Luiz Inácio Lula da Silva (PT) government.

The Ministry of Finance created 19 working groups to close the projects and indicated to the President of the Chamber, Arthur Lira (PP-AL), who is working to send the texts by the end of the first half of April.

To date, however, no version of the draft supplementary bills has been released or is known to the public. As a result, there is uncertainty about the size of the resulting tax burden.

The main doubts of companies, reported to the Sheetare in relation to the potential credits that can be used in the new model, in addition to how companies can use them.

This point is considered the heart of the reform with the dual VAT (Value Added Tax): the federal CBS (Contribution on Goods and Services) and the IBS (Tax on Goods and Services), from states and municipalities.

The credit system is essential to define the level of tax burden to which the sectors will be subject, according to experts. The Minister of Finance, Fernando Haddad, has not yet announced the new rate parameters.

Under the VAT taxation model, each company effectively only collects the tax relating to the value it added to the product or service. All taxes paid when purchasing inputs from the seller, including energy, telephone, marketing and transportation costs, become credit.

Many consultancies have advised companies to carry out simulations of the new tax burden based on the amendment to the Constitution approved in December, which has been called by companies a “calculator” for the reform.

The problem is that these calculations need the rules that will be established by the complementary laws.

Another major concern raised by experts is related to the so-called “financial credit”, an innovation brought about by the tax reform — but which was not made mandatory in the tax credit compensation rule (called crediting) of the CBS and IBS.

Under this system, the credit can only be used by the buyer if the tax authorities actually receive the tax amount. The reform left the task of elucidating hypotheses in which use will be conditional on verification of effective tax collection to a complementary law.

To facilitate this work, the regulation will define the rules for implementing the so-called split payment (or split payment, in free translation).

It is a technology to be used in the financial settlement of transactions between supplier and buyer. Therefore, the tax can be paid at the time of purchase. The bank separates, at the time of payment, the tax for public coffers and the amount allocated to those who provided the good or service.

The model, however, brings challenges and faces resistance.

According to government officials, the regulation will provide for split payment and the situations in which it can be used. One of the problems to be resolved is service provision situations.

If payment is made in cash —a common practice in the sector—, split payment cannot be applied. This creates a risk that companies will be able to avoid paying taxes.

In the states, there are those who say that the model does not solve operational problems. Defenders claim that many representatives of regional governments have viewed regulation in working groups with the eyes of ICMS and ISS, taxes that will be replaced by IBS.

Febrafite, an entity that represents state tax auditors, is one of the critics and published an article in Sheet warning of the risks of mandatory split payment.

In the text, Rodrigo Spada, president of the organization, says that the measure would generate, in practice, a huge parallel, informal and tax-free market. The inspectors drew a specific sketch for the Treasury.

According to the proposal, the amount of IBS due for each operation must be indicated, line by line, in the tax document relating to the operation.

The deadline for payment of IBS indicated in the tax document must be set for, for example, the 10th of the month following the month in which the tax document was issued, after which legal increases must apply.

“It is not an opposition [à proposta]. It’s a model that details how a split payment can be done well, because the devil is in the details”, said Rodrigo Frota da Silveira, auditor at the São Paulo Revenue Service and member of the Febrafite Technical Committee.

For tax expert Luiz Bichara, states that are against the system want to continue delaying the return of credit to companies, as, according to him, is happening today. “There is no other reason to be against it,” he said.

In the business sector, the CNI (National Confederation of Industry) presented contributions and awaits the presentation of the texts by the Ministry of Finance.

According to the director of Institutional Relations at CNI, Roberto Muniz, the idea is to participate intensely in the negotiations Congress. “Within the reform there are many themes. All of them in some way have fringes in the industry,” he said.

“It is the PLs that will really establish how the VAT will be given. Who will be in, who will be out”, stated Muniz.

The most important thing, according to him, is precisely the regulation of the credit system. The CNI also fears the increase in exception regimes.

In the financial market, the concern is that there are no delays, which could delay investments. For Caio Megale, chief economist at XP Investimentos, investors will not decide to invest resources without estimating the tax burden.

“If you ask any company in Brazil, no one is comfortable with what the tax system will be like in four, five years,” said Megale.

Unecs (National Union of Commerce and Services Entities) also fears delays. In the opinion of the president, João Galassi, it is essential that the regulation be carried out within the initial planned timetable, between the years 2024 and 2025, even considering the impacts of municipal elections.

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What is at stake in regulating tax reform

What is the government discussing now?
It is preparing the texts of the draft regulations for tax reform. 19 working groups were formed. The texts will pass through Minister Fernando Haddad (Finance) and then through the Civil House before being forwarded to Congress

Why are companies worried?
They say they need to plan and want to know how big the tax burden will be. They also state that they need to carry out simulations because for a period of time, until the reform is fully implemented, they will live with two systems: the current one and the new one.

What solutions are advocated?
The solution that companies are defending is that the rate does not exceed 25% and that, in addition, easier and more simplified implementation standards are defined. They also want guarantees that they will receive credit for the tax paid in previous stages of production when purchasing inputs and services.