Funeral sector mobilizes to change tax reform

Tax reform could increase the value of taxes applied to funeral services by between 130% and 206%. This is what funeral companies, cemeteries and crematoriums claim, which have drawn the government’s attention to what they characterize as the sector’s mistaken approach to reform.

Businesspeople claim that they are regulated and inspected as is the case in the health sector, of which they are the last link, but that in the reform they were not treated as such.

“We are inspected by all health entities, but when it comes to paying taxes we are not classified as such. But we are from the healthcare sector, we are the final link. Unfortunately, when the hospital and the doctor don’t resolve the issue, the end of the health chain are the funeral homes and the cemetery”, explains Cláudio Bentes, who is president of the Association of Cemeteries and Crematories of Brazil (Acembra).

According to calculations made by tax experts at the entity’s request, today the average rate for private funeral services is 8.65% (5% ISS, 0.65% PIS, 3% Cofins). With the reform, however, it could reach 26.5%. This means that, in the case of a service that costs an average of R$3,000 (not counting taxes), taxes would jump from R$259.50 to R$795, taking the final price from R$3,259.50 to R$ $3,795.

The impact could be even greater if the standard consumption tax rate is 28% after the reform, as calculated by the Ministry of Finance, instead of the 26.5% initially calculated.

Approved in July by the Chamber, the proposal to regulate the tax reform reached the Federal Senate for approval, where it will be voted on by the Constitution and Justice Committee and the Plenary. However, the Economic Affairs Committee has promoted a series of hearings to understand the demands of the most diverse sectors regarding the impacts of the tax reform.

On September 12, representatives from the funeral sector took their demands to one of these hearings. During the session, Heleno Torres, professor of Financial Law at the department of Economic, Financial and Tax Law at the Faculty of Law of the University of São Paulo (USP), expressed his surprise regarding the treatment given to the sector in the reform regulations.

When dealing with the reduction in the rate granted to health services, which are included in Annex 3 of PLP 68/2024, the tax expert states that the inclusion of funeral services is in accordance with the rules of the tax reform. “In the eyes of the government it appears that another exception to the general rate is being created, but no, it is about the continuity of the health service that is provided by this segment and recognized as such by the Health Surveillance Agency and municipal legislation”, he said.

On August 13, after the publication of reports about possible increases in the taxation of funeral services, the Presidency’s Social Communication Secretariat (Secom) published a note refuting the information. The government states that the calculation of a 206% increase in taxation disregards the credit recovery system created by the reform, and that the Simples Nacional tax regime will be maintained for micro and small companies in the sector.

Secom called the texts on the topic “pieces of misinformation”. “This calculation [aumento de 206%] disregards that the new taxation model will allow taxpayers to fully recover the taxes paid on their acquisitions, in the form of credit. Furthermore, the proposals involved in changing the tax arrangement in the country do not alter the Simples Nacional taxation regime, which will continue to be an option for companies with annual gross revenue of up to R$4.8 million.”

In its note, Secom also cites the Ministry of Finance when stating that Constitutional Amendment 132, which created the basis for the implementation of the reform, does not allow differentiating rates for goods or services not provided for in the amendment itself – and the funeral sector does not was included. For this reason, the secretariat claims that the reduction of the sector’s rates by PLP 68/2024, which is a reform regulation project, would be unconstitutional.

Another point highlighted by the secretariat is that it would be “misleading to compare the current rate with the expected rate after the implementation of the reform”, and once again cites the appropriation of credits for taxes paid for inputs at all stages of the sector as a form of limit taxation.

The funeral sector is labor intensive

Cláudio Bentes explained to People’s Gazette that the reframing of the sector is not the creation of an exception to the new rule, but a correction, since funeral companies are part of the healthcare system. Therefore, it would only be the extension of the benefit provided to that system.

In the tax reform, health plans and agreements will have a 60% reduction in the VAT rate. In the case of the funeral sector, a reduction of this size would cause taxes to fall from the alleged 26.5% to 10.6% – a tax a little closer to the average of 8.65% taxes that fall on the sector today.

Bentes also highlights that the funeral sector has some peculiarities that are not being considered by the government. The first of these is in relation to the total number of companies registered under the Simples Nacional regime.

According to the president of Abacem, only 30% of CNPJs in the sector are registered with Simples, while 60% are under the presumed profit regime and 10% under the real profit regime. Therefore, the exemption that the tax reform provides for micro and small businesses that adopt the simplified regime will affect less than a third of funeral companies.

Another point highlighted by Bentes is that funeral services are labor intensive. “It is a sector that employs a lot of labor. Around 50% of our costs are labor. This happens because we work 24 hours a day, 365 days a year. Every day, at night, in the early hours of the morning, we are working”, he clarified.

Revenue figures for the bereavement industry are mixed. There are estimates that range from R$7 billion to R$13 billion. Bentes states that the total is around R$10 billion per year, employing approximately 250 thousand people.

He says he is unaware of any other activity that has this proportion between the size of revenue and the use of hired labor. Furthermore, it argues that the services provided cannot be outsourced, as it is “direct employment with a formal contract in our companies”.

The funeral sector’s production chain is short and limits credit deductions

Representatives of the funeral sector also claim that, as it is labor intensive, it does not have a large production chain, in addition to having reduced use of inputs – including funeral urns, coffins, flowers, clothes and products to prepare bodies .

Furthermore, the production chain for these products is also not extensive. In some cases, like flowers, for example, funeral homes can buy directly from producers. Bentes also explains that, if they are rural producers who enjoy exemptions in the tax reform, the credit reduction resource is more affected.

After the government’s response, Abacem redid the calculations of the impact on taxes, considering that the sector uses 25% of inputs and that it obtains 100% deduction of the credits mentioned by the government. In these cases, the association projects that the increase in taxes will reach around 130% – that is, even so, the taxation will more than double in relation to the current one.

Robson Posnik, president of the Union of Cemeteries and Crematories of Paraná, states that the extra taxation will inevitably affect the prices of services. He highlights that in moments such as the Covid-19 pandemic, the sector was considered essential and fundamental in health issues, but that this view did not remain true when it came to tax collection.

Increase in taxes on funeral services could impact municipalities

One of the points highlighted by Robson is the impact that increased taxation can have on small municipalities. He states that practically every Brazilian municipality has a funeral home and a cemetery, and that in general the populations are served by private companies.

Since the 1970s, he says, municipal administrations have stopped investing in public cemeteries and funeral homes. Private services took this place, including among the low-income population.

If the sector is unable to qualify as a health service in the reform, he believes that even municipal administrations could be affected, as more people could ask city halls for help to bury family members.

Another point is access to funeral plans. Posnik states that most low-income families opt for this type of financing to guarantee a dignified burial for their relatives. The increase in taxes could also impact this sector, which has guaranteed access to these services to the less wealthy classes.