Income and consumption should concentrate tax news – 01/01/2024 – Market

The federal government’s proposals for changes to the tax system will once again take center stage on the economic agenda in 2024. The approval of these agendas next year will depend, however, on the pace of Congress in the year of municipal elections.

The text of the tax reform approved in 2023 already includes a schedule for sending bills on three topics. In other words, the deadlines are now set out in the Constitution.

According to the constitutional text, the Executive Branch must forward to the National Congress within 90 days after the promulgation of the reform a bill that deals with income taxation. This text must address the end of Income Tax exemption in the distribution of profits and dividends from companies to individuals.

There is also the expectation of a new correction in the IR table.

It was also determined that the government would send a bill reforming payroll taxation by March. The announcement of this proposal, however, was anticipated by Minister Fernando Haddad (Finance), who published an MP (provisional measure) providing for the gradual repayment of the payroll.

The Executive will still have to send, by mid-June, the bills that will deal with the details of the tax reform approved this year, which deals with taxes and contributions on consumption. The idea is to do this by April.

The proposal approved in December makes 74 mentions of the need for a complementary law to regulate the taxation system that begins to come into force in 2026.

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Schedule of tax reforms in 2024

The Executive Branch must forward to the National Congress:

• Bill that reforms income taxation by March
• Projects that regulate the reform of consumption taxation until June

Source: Federal Constitution.

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“The complete functioning of the system can only be known after all these regulations. It was mainly in the infra-legal acts, in the ancillary obligations and in the interpretations that the current system became so complex and lacking in coherence”, says the partner at Finocchio & Ustra Advogados Bruno Marques Santo.

The government has already anticipated that there will be at least three bills. One to regulate the two main taxes created (federal CBS and IBS from states and municipalities) and define their exceptions, one for the IBS Management Committee and the other for the tax on items harmful to health and the environment.

The government is still evaluating the need to present a fourth project to deal with compensation funds.

The president of the Chamber of Deputies, Arthur Lira (PP-AL), indicated that the House may simultaneously look at these texts to approve them before the elections and that regulation will be one of the Legislature’s priorities next year.

In theory, the government has until September 2025 to approve these projects, which would allow the transition to the new system to begin the following year, meeting the ninety and annuality deadlines. But infra-legal standards will still be necessary to be issued by the Revenue, for example, so that everything works within the deadline set out in the Constitution.

As a result, the vote on Income Tax reform may be postponed for a second time.

Changes that come into force in 2024

In 2023, the Ministry of Finance promoted a series of changes to the tax system that come into force next year.

The tax consultancy IOB listed some of them at the request of Sheet.

On January 1st, the law that changes the taxation of investments in investment funds in the country and of income earned by residents from investments abroad in offshore companies comes into force.

The new rules are also starting to come into force so that companies can reduce taxation on profits using mechanisms such as ICMS state subsidy credit for investments. This is the government’s main bet to increase revenue in 2024.

There will also be changes to the JCP (Interest on Equity) rules paid to company shareholders, which will become more restricted from this year onwards.

Regarding ICMS, Fernanda Prado Sampaio, coordinator of the tax consultancy area at Finocchio & Ustra Advogados, highlights the forecast of tax transactions and self-regularization for companies that have taken advantage of the tax benefit of the subsidy in the past, with discounts that can reach 80% of the value of debts.

According to Sampaio, both in the transaction, for debts under administrative or judicial discussion, and for self-regularization (when the tax credit has not yet been released), adherence is linked to the condition that the company desists from questioning these charges.

“It is an attempt by the government to take advantage of the delicate moment of uncertainty and try to get the taxpayer to confess and pay debts, which in theory they would not pay under normal conditions”, he states.

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Some tax changes that come into force in 2024

• From January 1st, transfers of goods and merchandise in interstate operations will no longer be taxed, and companies will have to observe the procedures set out in ICMS Agreement 178/2023
• Law No. 14,754/2023 changes the taxation of investment funds in the country, including exclusive ones, and of income earned by individuals resident in Brazil in financial investments, controlled entities and trusts abroad, from January 1st
• From January 1st, change in tax credit resulting from state subsidy (ICMS) for the implementation or expansion of an economic enterprise
• New rules on transfer pricing will come into force from January 1st, regarding the determination of the IRPJ/CSLL calculation basis for legal entities domiciled in Brazil that carry out controlled transactions with related parties abroad
• Change in the JCP (Interest on Equity) rules paid to shareholders, which are more restricted.

Source: IOB

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