Government will propose up to four types of cashback in tax reform regulations – 01/18/2024 – Market

The Luiz Inácio Lula da Silva (PT) government will propose up to four different types of cashback in the tax reform regulations, as the return of part of the taxes paid by low-income families is called.

For two of them (electricity and cooking gas), the text of the constitutional amendment already requires the use of the instrument.

In the negotiations for the final vote on the reform in the Chamber, last December, the Executive also committed to implementing cashback to benefit families who consume sanitation services (water and sewage).

The promise was a kind of compensation for the removal, at the last minute, of sanitation from the list of sectors that will have a specific taxation regime in the new system.

The approved text places the sector under the normal collection regime for the two new taxes that will be created, the federal CBS (Contribution on Goods and Services) and the IBS (Tax on Goods and Services), from states and municipalities. Without cashback, there would be a risk of increasing the tax burden on lower-income consumers.

The Ministry of Finance is still discussing the adoption of cashback for basic food products. Its viability will depend on the number of items to have the new tax rate zeroed — the longer this list, the less space to return values ​​to families.

The list of products contained in the so-called National Basic Basket, provided for by the reform, will be defined during the regulation — which should become one of the fiercest clashes in the negotiations between the government and Congress. The greater the number of items, the greater the potential government waiver.

“Depending on how the basic basket will be, there may be a part with cashback, but it is under discussion”, said the extraordinary secretary of Tax Reform, Bernard Appy to Sheet.

“Let’s be very clear: the broader the scope of products in the basic basket that have a zero rate, the lower the possibility of receiving cashback,” he said.

More than a hundred people will work on drafting the reform regulation projects, of which there should be three so far.

A technical advisory program for the implementation of the reform was created at the beginning of this month, with 19 thematic technical groups and another for legal analysis.

A systematization commission, coordinated by Appy, will summarize the proposals and define the general scope of the proposals to be presented to Minister Fernando Haddad (Finance) and sent to Congress.

The start of work will take place next week, with the installation of the commission. From then on, the Ministry of Finance’s ordinance provides a period of 60 days to complete the work — that is, the government must have a first skeleton of the projects by the end of March.

According to the constitutional amendment promulgated by Congress on December 21, the government has up to 180 days to send draft regulations. But the Treasury intends to bring forward this deadline so that the calendar of municipal elections does not affect the processing of projects in the Chamber and Senate.

“Exactly because of the shorter election window, a huge effort is being made to send the projects to Congress in a much shorter period of time than the 180 days predicted,” said Appy.

According to him, the concern is much more about the fact that congressmen return to their bases during the election period, leaving Congress emptied in the second half, than about possible political contamination of a debate considered to be eminently technical.

In addition to regulating the reform of taxes on consumption, the government will have to send the proposal to reform taxation on income and payroll by the end of March, when the 90-day period provided for in the constitutional amendment expires.

Government technicians will be involved in both tasks, but the priority is to speed up regulation.

The systematization commission and technical groups will be able to call on civil society bodies and entities to participate in the discussions. Each group will have autonomy to decide who will be invited.

One of the technical groups deals precisely with the basic food basket and the return of part of the IBS and CBS to individuals.

Cashback on the electricity bill and cooking gas is mandatory — the first can even be done automatically via a rebate on the electricity bill. The return of the tax on sanitation services was a government commitment, and could also occur directly on the invoice.

For Appy, Brazil has the structure to manage all these cashbacks at the same time, as it already has systems that allow identifying the buyer of the good or service, in addition to having a broad database to map the low-income families that will be the focus of the initiative.

The target audience that will effectively benefit from the cashbacks, however, has not yet been defined and will also be the subject of discussions in the technical group.

One of the possibilities is to unify cashbacks and their payment based on the consumption level of the low-income population.

“If there weren’t a series of reduced tax rate regimes, we could discuss, for example, a universal cashback system for everyone, with a limit”, explained the secretary.

Economist Rodrigo Orair, who is part of Appy’s team at the Ministry of Finance, will coordinate the group responsible for the proposal to regulate the basic food basket and cashback.

During the reform, Orair also worked in the group that calculated the IBS and CBS rates.

The latest estimates released by the department pointed to a charge of up to 27.5% on goods and services, but this was before the final vote in the Chamber — which eliminated a series of exceptions previously inserted by the Senate. At the time, the government itself indicated that it expected a reduction in the rate following the deputies’ decision.

Appy stated that the government has already completed the new charge calculations based on the text of the promulgated amendment, but there is no scheduled date for publication.

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REFORM REGULATIONS

Project 1 – Regulation of CBS and IBS

• General rules for new taxes

• Delimitation of reduced rates

• Products included in the basic basket, with zero tax rate

• Rules for specific regimes

• Cashback rules

• Transition rules for society (migration from current taxes to new ones)

• Federal transition rules (affects states and municipalities)

• Regulation of the tax benefit compensation fund (until 2032) and other funds provided for in the constitutional amendment

Project 2 – IBS Management Committee

Project 3 – Selective Tax

• General rules of the new tax, which may be applied to the production, extraction, commercialization or import of goods and services that are harmful to health or the environment

Still under definition

• Fiscal administrative process for new taxes: there are ongoing discussions with the AGU (Attorney General of the Union), and the government is yet to decide whether to address this issue in project 1 or whether to propose something separately

THE CASHBACK MECHANISM

Government foresees up to four situations in which taxpayers will receive back part of the tax paid:

1. Electricity bill (return on the electricity bill itself)

2. cooking gas

3. Water bill and sewage collection service (return on the sanitation invoice itself)

4. Basic basket (depending on the size of the list of zero-rate products)