List of sectors that will have reduced taxes in the tax reform only grows

The number of sectors that will benefit from a rate reduction only increases with each new version of the proposed amendment to the Constitution (PEC) for tax reform, currently being processed in the Senate. As a result, the tendency is for the average percentage of new taxes that will be levied on all other taxpayers to rise increasingly.

On Wednesday (25), the PEC rapporteur in the Senate, Eduardo Braga (MDB-AM), presented his opinion with a substitute for the version approved in July in the Chamber of Deputies. In his proposal, the senator increased the total number of areas that will benefit from a 60% reduction in the standard rate from nine to 13.

The basis of the proposal is the adoption of a dual Value Added Tax (VAT) system. The Goods and Services Tax (IBS) would come into force in place of the state ICMS and municipal ISS; and the Contribution on Goods and Services (CBS), which replaces three federal taxes: PIS, Cofins and IPI.

In his opinion, the rapporteur included in the text a device that creates a brake to prevent the increase in the tax burden, taking as a reference the average revenue from consumption taxes calculated as a proportion of the Gross Domestic Product (GDP) between 2012 and 2021. But how the ceiling concerns total revenue, the tax reduction for certain sectors must imply an increase for those not included in the list of beneficiaries.

The government projects a standard rate, adding IBS and CBS, between 25.45% and 27%, but Warren Rena’s chief economist, Felipe Salto, calculated that average rates would reach 33.5% considering only the approved tax benefits in the camera.

For Salto, the alternative proposal presented in the Senate worsened the version that came out of the Chamber because, among other reasons, it did not reduce the number of exceptions. “On the contrary, the possibility of a 30% rate reduction for elected professional categories was introduced,” he says.

According to Braga’s text, the following will be on the list with a 60% discount on the new taxes:

1. education services;
2. health services;
3. medical devices;
4. accessibility devices for people with disabilities;
5. medicines;
6. basic menstrual health care products;
7. urban, semi-urban and metropolitan public transport services for road and metro passengers;
8. food intended for human consumption;
9. personal hygiene and cleaning products mostly consumed by low-income families;
10. agricultural, aquaculture, fishing, forestry and vegetable extractive products in nature;
11. agricultural and aquaculture inputs;
12. national artistic, cultural, journalistic and audiovisual productions, sporting activities and institutional communication; It is
13. goods and services related to sovereignty and national security, information security and cybersecurity.

Apart from these sectors, the PEC foresees two different types of basic food basket: a more restricted one, whose products will have IBS and CBS rates zeroed, and another extended to other foods, on which there will be a 60% reduction in taxes. The items that will appear in each of the product packages will be defined by means of a complementary law.

In the proposal, there is also the possibility of exemption, or a 100% reduction in the rate in specific cases, which will be regulated by complementary law, in the following sectors:

1. urban, semi-urban and metropolitan public transport services for road and metro passengers;
2. medical devices;
3. accessibility devices for people with disabilities;
4. medicines; It is
5. basic menstrual health care products.

According to the proposal, the following are also exempt from CBS:

1. higher education education services under the terms of the University for All Program (Prouni) and
2. services provided by non-profit innovation, science and technology entities (ICTs).

In addition, if Braga’s report is approved, service providers “of an intellectual profession, of a scientific, literary or artistic nature, will have a 30% reduction in the rate, as long as they are subject to supervision by a professional council”. This category includes independent professionals such as doctors, lawyers and accountants, for example.

The substitute also provides for a series of situations in which tax credits may be granted, which also entails a tax waiver and may lead to an increase in the standard rate.

For example, rural producers with an annual income of less than R$3.6 million and taxpayers who purchase their goods or services may receive credits. Consumers of autonomous freight and waste transport services and other materials intended for recycling, reuse or reverse logistics also come into this situation.

There are also other measures, which the senator considers “to control or reduce the tax burden”. According to the text, the rates and calculation basis relating to financial intermediation, for example, will be defined in such a way as not to increase the cost of credit in the country. A part of the income from IBS and CBS may still be returned, as defined in a subsequent complementary law, to low-income consumers, through the so-called cashback.

Finally, a kind of “jabuti” also extends until 2032 the tax benefits granted to the automotive sector, which would end in 2025. The proposal is that the benefits be transformed into presumed CBS credit.

The device, if approved, should directly benefit the Chinese BYD, which intends to set up shop in Camaçari, Bahia, and has already announced an initial investment of R$3 billion for the production of heavy electric vehicles at the former Ford factory in the city.

The immunities already provided for in the Constitution will also apply to the new taxes – that is, the Union, states and municipalities are prohibited from collecting taxes from:

• religious entities, temples of any cult, including assistance and charitable organizations;
• political parties, including their foundations;
• non-profit workers’ unions, educational and social assistance institutions;
• books, newspapers, periodicals and paper intended for their printing; It is
• musical phonograms and videophonograms produced in Brazil containing musical or literary works by Brazilian authors and/or works in general performed by Brazilian artists as well as the material supports or digital files that contain them, except in the stage of industrial replication of optical laser reading media .

Furthermore, the parliamentarian increased from five to eight the sectors that will have specific taxation regimes, which in some cases may also have a reduced rate or calculation base. In others, although they do not necessarily result in tax relief, they depart from one of the main premises of the original reform proposal, which is to simplify the current tax system.

According to Braga’s report, they may have specific taxation regimes, according to complementary law:

1. fuels and lubricants;
2. financial services, real estate transactions, health care plans and prognosis competitions;
3. cooperative societies;
4. hotel services, amusement parks and theme parks, travel and tourism agencies, bars and restaurants and regional aviation;
5. operations achieved by international treaty or convention, including those relating to diplomatic missions, consular offices, representations of international organizations and their respective accredited employees;
6. sanitation and highway concession services;
7. collective passenger transport services by intercity and interstate road, rail, waterway and air; It is
8. operations involving the provision of the shared structure of telecommunications services.

The amount of benefits granted to certain sectors of the economy was criticized at the beginning of the year by the Minister of Finance, Fernando Haddad. In April, he said that so-called tax expenditures result in a loss of revenue of R$600 billion per year.

“The PEC ended up being a mixture of what those who designed it wanted, seeking a very simple, direct and exception-free system, with another proposal, which brings many exceptions”, says lawyer Renata Cubas, specialist in tax law and partner at the firm Mattos Filho.

“Even to address the challenges that Brazil has, we really had to adopt different approaches for different sectors. But I think we are facing the challenge of a patchwork quilt to be sewn”, she assesses.