Kassab: SP does not support tax reform as it is – 02/06/2023 – Market

The Tarcísio Freitas administration has shown new signs of having restrictions on tax reform proposals being processed in Congress.

The secretary of government of the state of São Paulo, Gilberto Kassab, said this Monday (6) that the tax reform needs to go hand in hand with the administrative reform, so that there is a balance between spending and collection.

He also claimed to be against the return of taxation of profits and dividends, a proposal presented by former Minister Paulo Guedes (Economy) and which also has the support of the current government. He said that some people are in favor of radical tax reform to collect more, but that this will lead to capital flight.

The Lula government intends to approve a reform of taxes on consumption, in a first moment, and also changes in the Income Tax rules that include the taxation of dividends.

“If we did the tax without thinking about the administrative, it will not be a tax reform. It will be a project to increase the burden,” said Kassab during an event with businessmen organized by Grupo Voto.

The secretary stated that all the proposals being discussed in Congress have their merits, citing by name PEC 45, prepared by the current secretary of the Ministry of Finance Bernard Appy, and the project on Income Tax by former minister Guedes, which has already been approved by the Chamber.

About the latter, he stated that taxing dividends will disturb the lives of businessmen and increase the interference of the Federal Revenue in the lives of companies.

Kassab was also asked about a possible increase in the general ICMS tax to offset the rate reduction for items such as fuel and telephony. He stated that the governors asked the federal government to resolve the issue.

The secretary also stated that his party supports the federal government, but will not vote in favor of economic measures that could generate problems in the economic area and drive away investment. He said that the PSD will be “radically against any change” in pillars such as regulatory frameworks, laws on regulatory agencies and labor reform. He also defended the spending cap rule.

“I am in favor of the ceiling law and I understand that it has been working well. [Henrique] Meirelles, who is the father of the idea, already admits to some exceptions. Tax reform for me is working to improve the ceiling law.”

Kassab said that President Lula’s few manifestations “do not go in the sense of reasonableness in relation to balance” fiscal, but said that the government is in its beginning and that the president should follow the pattern of his first term.

“We are from the base of the federal government. Our leaders are ready to help the government, but not to follow in what could take the economy off course,” he said.

“I am hopeful that common sense will prevail. We need this government to succeed. Lula, to make a good government, has no way out, he has to get the economy right. I am not worried about Lula taking a turn to the left.”

MOST ADVANCED PROPOSALS AT THE CONGRESS

1) PEC 45 – report by Deputy Aguinaldo Ribeiro

• Replaces five taxes (PIS, Cofins, IPI, ICMS and ISS) with a Tax on Goods and Services and a Selective Tax on cigarettes and alcoholic beverages
• Six-year transition in two phases, one federal and the other with ICMS and ISS
• Replaces the exemption of the basic food basket with the refund of taxes for lower-income families

2) PEC 110 – Senator Roberto Rocha report

• Creation of CBS (Contribution on Goods and Services) with merger of PIS and Cofins
• Creation of the IBS (Tax on Goods and Services), with the merger of ICMS and ISS
• Replaces IPI with a selective tax on items harmful to health and the environment
• Creation of the Regional Development Fund, supplied with IBS resources
• Tax refunds for low-income families

3) PL 3887/2020 – proposal from the Ministry of Economy

• Creation of CBS (Contribution on Goods and Services) with merger of PIS and Cofins
• Current rule for exemption from the basic food basket maintained

4) PL 2337/2021 – text approved by the Chamber

• IRPF exemption in the range up to R$ 2,500 and average correction of 13% in the other ranges
• Maximum simplified discount of BRL 10,563.60 (today, the limit is BRL 16,754.34)
• Taxation of dividends, with exemption for Simple and presumed profit
• Cut the IRPJ base rate from 15% to 8%
• CSLL cut by up to 1 percentage point
• End of JCP (Interest on Equity)

Sources: Chamber of Deputies and Federal Senate

GROUP OF SIX PROPOSAL (BERNARD APPY AND OTHERS)

1) Taxation of consumption: pursuant to PECs 45 and 110, pending in Congress

• Replacement of five taxes (PIS, Cofins, IPI, ICMS and ISS) by a value added tax (VAT), with centralized collection and shared management (PEC 45)
• Possibility of having a federal VAT and others for states and municipalities (PEC 110)
• Replacing the basic food basket exemption with tax refunds for lower-income families

2) Taxation of labor income

• Update of the IRPF table plus annual correction for inflation
• Additional rate for higher rents
• Limitation of tax benefits
• Reduction of the employer’s contribution in the portion of remuneration above the INSS ceiling

3) Capital taxation

• Reduction of the tax rate on corporate profits and change in the calculation basis
• Taxation of dividends and other income through a progressive table

4) Taxation of financial investments

• Eliminates exemption for some applications (LCI, LCA, CRI, CRA and real estate fund)

5) Simplified regimes (Presumed and Simple Profit)

• Reformulation to correct distortions that hinder the growth of small companies, discourage “pejotization” and low taxation of high income
• Small Simples should pay less tax; high-end PCs, more

6) Taxes on equity

• Complementary law on inheritances and donations abroad
• IPVA for vessels and aircraft
• Review of the ITR (rural land tax)

Source: Contributions to a Democratic and Progressive Government (August/2022)