Debate at public hearing shows discomfort with guarantee on new tax credit – 03/15/2023 – What tax is this

Debate at public hearing shows discomfort with guarantee on new tax credit – 03/15/2023 – What tax is this

The objective of the public hearing held this Tuesday (14) by the tax reform working group was to obtain a “diagnosis of the current tax system”, but the debate also served to point out some points of resistance to the two proposals that are being discussed in Congress.

Mary Elbe Queiroz, postdoctoral fellow in Tax Law at the University of Lisbon, for example, told parliamentarians that the two proposals under discussion are great letters of intent, which leave many relevant points for definition by means of a complementary law.

She questioned several times the statement that the reform provides for broad credit to avoid the accumulation of new taxes. According to Queiroz, PECs 45 and 110 do not change the constitutional text in relation to the issue of non-cumulativeness.

The tax specialist also questioned the need for the taxpayer to inspect the supplier to guarantee the credit and the 60-day period for the refund. That is, selling the product without knowing the tax burden of the product.

“What price will I sell? I bought it today and I’ll sell it in five days. Am I going to include a credit to be compensated? How, if I don’t know if it will be compensated or not?”, he questioned. “This needs to be fixed.”

The issue aroused the interest of parliamentarians in the working group, who asked for more clarification on the subject.

“In order not to be cumulative, let’s say that I bought from that company and that it hasn’t paid the tax yet. How am I going to charge my price? This is not in the renovation. It needs to be clarified. It is a fundamental point for us to unravel this whole VAT issue. I am very concerned about the systematization of how this will happen on a daily basis”, said deputy Mauro Benevides Filho (PDT-CE).

‘Incomplete view’ of some sectors

Most of the debaters defended the proposals under discussion. Among them, Vanessa Canado, Luiz Carlos Hauly and former minister Maílson da Nóbrega.

Canado stated that many countries adopt differentiated rates for products, but that sectoral incentives do not exist anywhere in the world. “There is lower VAT for health and food, but not for the company. They look at the good and service that will be consumed. The impact of VAT in the end is on the price and not on the margin of producers and sellers.”

She countered the alternative proposals that suggest the implementation of a “sale tax” similar to the American one, stating that this is a highly evasive tax. Hence the choice of most countries in the European Union and Latin America for the IVA model, called IBS (Tax on Goods and Services) in the two PECs.

Maílson stated that the ICMS collection base is dwindling, which should serve as a warning to governors. And that the ISS (municipal tax on services) is “the worst tax in Brazil”, with cascading incidence, functioning as a kind of CPMF for the services sector.

He also said that service entities and agriculture have an incomplete view of the reform and that meeting all sectoral demands will worsen the quality of the reform.

“Someone calculated that taxation on agriculture is going to increase by 300%. Impossible. People are not considering the benefits of the reform for agriculture, including the use of credit, which practically does not exist today, and the exemption of exports,” he stated.

Lawyer Eduardo Fleury presented a work he carried out together with the World Bank on the tax burden of some goods and services, in which he shows how cumulativeness creates what he classifies as a “tax iceberg”, the part of the burden made up of ” invisible taxes”.

In construction, the visible charge of 5.99% would hide a 16% tax. Coffee, even with zero retail taxation, carries a taxation of 10.6%.

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