How the opposition to Lula prepares for the discussion of tax reform

The opposition to President Luiz Inácio Lula da Silva (PT) wants to assert the size of its benches in the Chamber and Senate and not facilitate the processing of the tax reform in the manner intended by the federal government.

The Planalto Palace signals with the proposal of a “sliced” reform, having as a first step the unification of taxes on consumption, an idea that does not have unanimity in Congress.

The government shows signs of support for a tax reform that contains points of consensus between the proposed amendments to the Constitution (PECs) 45/2019 and 110/2019. Both propose the merger of taxes on consumption in the form of a single tax, a Value Added Tax (VAT). PEC 45, which is being discussed in the Chamber, joins the IPI, PIS, Cofins, ICMS and ISS into a single tax. PEC 110, which is being discussed in the Senate, is more comprehensive and unifies IPI, IOF, PIS, Pasep, Cofins, Cide-Fuels, Salary-Education, ICMS and ISS.

In 2021, a merger between the two PECs was discussed in Congress by the rapporteur of federal deputy Aguinaldo Ribeiro (PP-PB), but was aborted by a political movement by the mayor, Arthur Lira (PP-AL), who retaliated the coreligionist in a nod to the government of then-President Jair Bolsonaro (PL).

The Lula government’s objective is to honor the backbone of PEC 45, whose intellectual author is the extraordinary secretary for tax reform at the Ministry of Finance, Bernard Appy. The political author is federal deputy Baleia Rossi (MDB-SP), national president of the party. The government’s idea of ​​taking advantage of consensual points of the two newsrooms is aimed at giving prestige to senators, since the Planalto estimates that it has fewer votes to approve a PEC in the Senate than in the Chamber.

It so happens, however, that the proposal for a tax reform on consumption through tax unification does not have unanimity or broad consensus in Congress. A considerable portion of the opposition prefers to exempt the productive sector without the provision of taxes along the production chain through a VAT.

The opposition led by the Liberal Party (PL) to Lula defends, for example, a tax reform with the concept of the North American model sales taxin which consumption tax is charged only at the stage of sale to the final consumer of the goods, instead of the impact on the production chain proposed in the VAT models.

As an opposition it proposes to face the tax reform of the government

Opponents of Lula calculate that they have approximately 250 votes against the government in the Chamber and 32 votes in the Senate – this is the total number of senators who supported the candidacy of Senator Rogério Marinho (PL-RN) for the presidency of the House. With this basis in Congress, there is an understanding that it is possible, at the very least, not to allow the government to approve the tax reform as it wants.

The opposition finds it unlikely to stop the government’s momentum in advancing with a text that draws consensus between PECs 45 and 110, but opponents promise willingness to try to fit possible points of PEC 7/2020, authored by deputy Luiz Philippe de Orleans e Bragança ( PL-SP) and inspired by the North American model of sales tax.

The intention of opponents is to try to advance this proposal or incorporate excerpts from it to the draft that will be prepared by the working group proposed by the president of the Chamber to deputies to discuss the tax reform.

Lira told leaders that she plans to create the commission after Carnival. The group’s coordination should be the responsibility of deputy Reginaldo Lopes (PT-MG), former leader of the party, and the rapporteur should be the responsibility of deputy Aguinaldo Ribeiro. Opponents are now articulating members to compose the working group, including parliamentarians who participated in the special commission that approved PEC 7 at the end of last year.

Rapporteur for PEC 7 in the special committee, deputy Bia Kicis says that, if by chance the text is unable to advance in the tax reform working group, she will work so that PEC 45 can incorporate excerpts from her report.

“PEC 45 will demand a lot of discussions because it has many problems. Just look at the proposal for the transition time of PEC 45, which is very complex and continues to be tied to principles that are totally outdated and obsolete, which are not working, such as the question the encumbrance of the productive chain [pelo sistema do IVA]. I believe that the system sales tax is what will resolve the tax issue in Brazil,” he says.

President of the special committee of PEC 7, deputy Joaquim Passarinho (PL-PA) believes that a unification between tax reform proposals is possible. “Anyone who comes to the plenary allows us to move forward. I learned over the eight years [de mandatos] that we are not going to get a big change all at once”, he evaluates.

The deputy understands that the institution of a working group or new special commission to discuss a tax reform is even positive to advance the discussion. “It will rain ideas and a new idea will emerge that is different from the others that are there”, he ponders.

The parliamentarian defends, however, it is necessary to be more daring. “That’s why I joined PEC 7. The government is thinking about its PEC, but [nela] the services sector, which employs the most, suffers”, he criticizes.

What opponents think of the tax reform advocated by the government

Deputy Bia Kicis considers that there is a “great distance” between PECs 7 and 45. “PEC 7 proposes a very simplified system, it is a structural change in our tax system and it does not enter into the rate policies, none of that, that it is for a complementary law. It is a huge step forward and leaves behind this VAT system, which is cumulative, and ends with the burden on the chain. No other proposal deals with tax reform in this way”, he highlights.

Bia’s opinion maintained the core of the proposal, which concentrates taxation on just three categories of taxes – on consumption, income and property – but creates a transition rule, preserves taxes such as CSLL and maintains the existence of state participation funds and the municipalities.

Orleans e Bragança, author of PEC 7, considers that his proposal is better than PECs 45 and 110 or even the combination proposed by Deputy Aguinaldo Ribeiro precisely because it does not impose a unification of taxes into a single tax. “These proposals put an end to state autonomy and create a bigger problem than what already exists today”, says the deputy.

He disagrees with the idea of ​​concentrating the tax collection in the hands of the Union and considers that proposals such as PEC 45 do not guarantee a “transfer guarantee” to subnational entities. “Imagine all the collection made in states and municipalities and all controlled by the Union. Mayors and governors no longer have collection responsibility, but how does the transfer work? of the federative pact, it is a subversion of the federative pact and therefore it does not go ahead”, he evaluates.

The rapporteurship of PEC 7 ensures that all three federative spheres can tax their final consumption operations, even if the recipient is a legal entity. Orleans e Bragança considers the articulations to superimpose the tax reform on its proposal to be an “overwhelm”. Among the proposals being discussed in Congress, it is the only one able to be voted on in plenary, since its constitutional admissibility was approved by the Constitution and Justice Commission (CCJ) and its merits by a special commission.

Deputy Joaquim Passarinho cites payroll exemption as the main defense factor for PEC 7. “We need to move forward in this area of ​​payroll exemption. Why didn’t the other PECs go ahead? tax reform is always about collecting more and distributing this resource, but neither [45 e 110] do that, because they start from the same collection principle that exists today and you leave out a very large financial transaction that is not even taxed”, he comments.

The parliamentarian argues that the exemption on the payroll can be adjusted and calibrated with specific rules and considers that the waived revenue can be recomposed through some taxation similar to the extinct provisional contribution on financial transactions (CPMF), as defended by Bolsonaro’s Minister of Economy, Paulo Guedes.

“If you don’t increase the pie, you don’t increase the slice, and to increase the pie I need differentiated collection. But I can’t introduce CPMF either, unless it was proposed as an instrument to pay social security and relieve payroll, which would be a [imposto] after the exemption”, says Passarinho. “The biggest difficulty with PEC 7 is that any very radical change is very scary”, he adds.

What the Lula government says about the reform and what it thinks of PEC 7

The PEC 7 defended by the opponents finds resistance in the economic team of the Minister of Finance, Fernando Haddad. Bernard Appy himself disagreed with the decentralization suggested in a public hearing at the special commission and claimed that the text defended by the current opposition is harmful to municipalities.

“A small municipality in Maranhão does not have the slightest possibility of financing itself by taxing only income, consumption, which is limited because the population is poor, and assets, which have little value. FPM [Fundo de Participação dos Municípios]”, he said. “As it stands, it is politically unfeasible to advance this proposal [PEC 7]”, he added.

Appy also rejected the idea that VAT burdens the production chain and maintained that the tax is perfectly adjustable to the digital economy. He also criticized PEC 7 in the section where it removes taxation on consumption between legal entities. “By exempting the production of companies, many people who are partners in companies will throw their personal consumption into the company to avoid paying tax”, he said.

The government’s goal is to have the text approved by the end of June, said on Monday (6) the vice-president and Minister of Development, Geraldo Alckmin. “I believe that [a reforma] may be approved in this first semester. You have to take advantage of the beginning of the government to approve the PECs, which requires a change in the Constitution and a qualified majority”, he said in a forum on green economy held by BandNews TV, in São Paulo.

The Minister of Finance, Fernando Haddad, considers that an approval in the first semester is possible if the government “is diligent and works hard”. “I see a lot of maturity on the part of both Houses, both the Chamber of Deputies and the Federal Senate, in seeking this result. There would be a chance to vote in the first half, in my opinion. If we are diligent, if we work hard, there is even this possibility “, he declared after a meeting with party leaders from the government base in the Chamber.

In order to ensure a quick approval, the government is considering proposing a reduced version of the tax reform based on PECs 45 and 110. According to the website Power 360five themes would be removed from the text that could create obstacles in the discussion, such as Simples Nacional and areas of health, education, public transport and real estate development.