Farm fights for revenues without basis in Congress and with the rest of the government against – 05/05/2023 – Marcos Mendes

The new fiscal framework will require a strong increase in revenues to pay for high and growing expenses. In the calculations I did with coauthors, we would need to reach 2027 with net revenue almost R$ 290 billion above the current one, in 2023 values. This is more than, for example, the annual collection of Cofins (R$ 277 billion in 2022) .

The Ministry of Finance has launched a revenue crusade, focusing on reducing privileges and legal loopholes. In principle, a good idea: revenue is gained, inequality is reduced and the incentives for misallocation of capital, which harm growth, are reduced.

It seems reckless, however, to use this strategy to close accounts in the short term, in a large amount, knowing the political and legal barriers that will need to be overcome before the money flows to the Treasury.

Of the R$456 billion in tax expenditures, always remembered as possible targets for cuts, almost 70% are politically untouchable, with items ranging from the Manaus Free Trade Zone to exemptions for churches. Recent attempts, such as ending payroll exemptions and the special regime for the chemical industry, were overturned by Congress several times. Even a constitutional amendment determining the reduction of tax benefits has already been approved, and nothing has changed.

There is a big bet on reducing the deduction of ICMS tax benefits when taxation of CSLL and IRPJ. The government had a partial victory in the STJ. However, as a report in Valor Econômico on 5/5/23 shows, there is room for embargoes and a possible need for the approval of a law, which will not be easy due to the resistance of the Northeast benches, where the benefits are concentrated.

The annual values ​​initially mentioned in the press, of R$90 billion, have already shrunk to R$47 billion. The loopholes left by court decision can make taxpayers and state governments change the type of incentive granted, to continue evading the federal tax authorities, further reducing revenue.

The taxation of exclusive investment funds by the so-called “come quotas” was already attempted in 2017, but the provisional measure was shelved. The regulation of sports betting sites will be made more difficult by the opening of a CPI on match manipulation.

A battle was partially won, with the approval, in the Chamber, of MP 1,147, which changed the way in which the ICMS discount is calculated in the calculation of PIS and Cofins. The alleged potential to collect is around R$ 60 billion per year.

The cost, however, came in the form of confirmation, in the same MP, of the zero rate of PIS, Cofins and IRPJ for event companies for five years (R$ 4 billion/year); zeroing of PIS and Cofins for aviation companies by 2026 (R$ 500 million/year) and renewal of tax benefits for Santas Casas. The MP also created a credit subsidy for BNDES financing for innovation activities that, at the end of the day, will represent less money in the FAT to pay the salary bonus and unemployment insurance.

Launching in search of significant revenue gains, without having a solid base in Congress, is difficult enough. Even worse when the government itself decides to grant new benefits.

When announcing the recent correction of the Income Tax table (annual loss of BRL 4.8 billion), the President of the Republic promised that, by 2026, the exemption will reach those who earn up to BRL 5,000 (annual loss of more than BRL 60 billion). He also defended the non-taxation of employees’ participation in companies’ profits (loss of BRL 4 billion a year).

The government proposed an increase in taxation of investments abroad to compensate for the correction of the IR table. However, it has been common practice in Congress to discard the compensatory measures and approve only the tax reduction.

Other incentive programs are being renewed or created. The automobile industry has been served with the renewal of Rota 2030 (R$ 4.5 billion/year), the incentive to exchange old vehicles for new ones and, now, the resurrection of tax incentives for the “popular car” is being discussed. The semiconductor and solar panel industries have already gained a new benefit, at a cost of R$ 600 million/year.

The risk of the account not closing is great.

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