Selective tax, called ‘sin tax’, may also apply to bicycles, motorbikes and TVs

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Ministry informed that the tax on bicycles, for example, would be lower than that on cigarettes and alcoholic beverages. Tax would not apply to products from the Manaus Free Trade Zone. The selective tax, which is being discussed within the scope of the tax reform on consumption in the Legislature — also called the “sin tax”, as it will surcharge cigarettes and alcoholic beverages — could also affect other products, such as bicycles, motorbikes, smartphones, TVs , air conditioners and notebooks, for example. The explanation is that these products are manufactured, in addition to other regions of the country, also in the Manaus Free Trade Zone (ZFM). To preserve the benefit of companies located there — a commitment from President Luiz Inácio Lula da Silva — the selective tax would only cover manufacturers from other parts of the country, keeping ZFM exempt. The selective tax would be regulated only after the approval of the PEC of tax reform by the National Congress, in 2024. The Ministry of Finance recalled that the tax reform includes the end of the Tax on Industrialized Products (IPI) — the instrument through which it is granted currently providing tax benefits to companies located in the region. Because of this, the selective tax (in addition to taxing tobacco and alcoholic beverages) will also be used to maintain benefits for ZFM companies. Currently, items produced at ZFM do not pay IPI. But the same products, manufactured in other regions, pay. With this, there is a competitive advantage for the Free Zone. With the end of the IPI, there was a fear that this competitive advantage would end up generating unemployment in that production hub. From the beginning of negotiations, the Legislature and the federal government assured that this would not happen. However, there was negotiation over the format that would be adopted to maintain the benefit. Finally, the text approved by the Chamber provides that the selective tax, or “sin”, will also apply to products from the Manaus Free Trade Zone manufactured in other regions of the country. Bernard Appy, extraordinary secretary for changes in the tax system at the Ministry of Finance, explained in August that the PEC approved by the Chamber of Deputies says that the new taxes, the federal VAT, the state VAT and the selective tax, will be calibrated to maintain the region’s so-called “competitive differentiator”. This means that items produced outside the Free Zone will maintain the difference in tax rates that currently exist in relation to products manufactured in other regions — which makes items produced there cheaper. The forecast is that the “sin tax”, on items harmful to health and the environment, will be created in 2027 at the full rate (total rate, excluding the transition value). Regulation will be carried out through a complementary law, after the approval of the tax reform PEC by the Legislature. Senate CCJ approves calendar for discussion of Tax Reform Bicycle association complains Aliança Bike, an association formalized in 2009 whose mission is to “strengthen the bicycle economy and its use by Brazilians”, complained about the incidence of the selective tax in bicycle sector. “What do bicycles, cigarettes, weapons and alcoholic beverages have in common? According to the new text of the Tax Reform, approved in the Chamber of Deputies, a lot. After all, it includes the possibility that bicycles are taxed in the same way as the other products mentioned, in the context of the new Federal Selective Tax (IS)”, says Aliança Bike, in a note. Bicycle production grew 14% in the Manaus Free Zone They also remember that the selective tax has also been popularly called the “sin tax”, as, in theory, it was created to discourage products that are harmful to health and the environment environment. The president of the Deliberative Council of Aliança Bike, Rodrigo Coelho, assessed that bicycle taxation is already “very high in Brazil, corresponding to 72% of the total cost”. “What we defend is broad and fairer tax relief on the bicycle production chain”, he added. According to Aliança Bike, 82% of all bicycle production in the country is spread throughout the national territory, in almost all states in the country , while 18% is concentrated in the Manaus Free Trade Zone. The Ministry of Finance informed that, in the case of products such as bicycles, the selective tax will only replace the IPI — which is currently in force, but which will be extinguished with the tax reform. “No It will therefore be an additional tax. Furthermore, in these cases, at most the rate that is already applied today in the IPI will apply – which, in the case of bicycles, ranges from 6.5% to 10% -, and not the same rate to be applied to alcoholic beverages and cigarettes”, reported the Ministry of Finance. The government also stated that “pieces of misinformation are mixing the two uses of the Selective Tax, implying that the Reform will treat bicycles as products that are harmful to health and apply to them an additional tax, when what will happen in relation to products manufactured in the Free Zone is a mere replacement of the IPI by the IS [imposto seletivo]”. Tax reform and the Manaus Free Zone In general terms, the tax reform on consumption replaces five taxes (PIS, Cofins and federal IPI, state ICMS and municipal ISS) with a federal value added tax (VAT), another state and by the selective tax. Taxes will be collected at the destination, where they are consumed, and VATs would become non-cumulative. This means that, throughout the production chain, taxes would be paid once for all participants in the process. To be valid, the reform still needs to go through the Federal Senate and a new round of voting by deputies. The text of the tax reform on consumption, which has already passed through the Chamber of Deputies, overcame initial criticism from businesspeople of the Manaus Free Zone. Created in 1967 and valid until 2073, the Free Zone grants tax benefits to industries located in the region, with the aim of promoting jobs and generating income in the Amazon. The industrial hub of Manaus has approximately 500 industries. For this year alone, the waiver of federal taxes for the Free Trade Zone and free trade areas should exceed R$35 billion. A survey by the Superintendency of the Manaus Free Zone (Suframa), carried out in December 2021, shows that there are more than 100 thousand jobs including permanent, temporary and outsourced jobs. Representatives of the region’s industrial sector also say that direct and indirect jobs total 500 thousand. Luiz Augusto Rocha, president of the Superior Council of CIEAM (Industry Center of the State of Amazonas), stated in an article that the text approved by the Chamber of Deputies meets the requests of the region’s business community. “The entity’s proposals that preserve the ZFM were included in the constitutional text, which was approved by the Chamber of Deputies. We still have enormous challenges. The next step is processing in the Federal Senate and then regulation in complementary legislation. With the certainty that The tax reform will ultimately be solid and equitable. There is no plan B, there is this focus: preserving the ZFM until 2073”, said Luiz Augusto Rocha, from the Amazonas State Industry Center. Electronics and motorcycle manufacturers When contacted by g1, the executive president of the National Association of Electronic Products Manufacturers (Eletros), Jorge Nascimento, stated that the entity is in favor of maintaining the full competitiveness of products manufactured in the Manaus Free Trade Zone “independently of the tool used to do so, which could be the Selective Tax”. According to Eletros: All air conditioning production in Brazil comes from the Manaus Free Trade Zone; All televisions manufactured in Brazil are manufactured at the ZFM Industrial Hub; All microwaves manufactured in Brazil are manufactured in the Free Trade Zone; More than 80% of Brazil’s audio production is also in the Manaus Free Trade Zone. According to Nascimento, the industrial hub of Manaus, considering the electronics sector, has multinationals and large national companies, such as Samsung, LG, Midea, Philco, Elgin, Mondial, TCL and many others. “Not ensuring the maintenance of the competitiveness of the Manaus Free Trade Zone would also be demobilizing companies and, probably, encouraging them to leave there. The point is that this migration should not occur to other states in the country, but to other countries. No there is a prospect of relocating these companies to other states, as they would not be able to maintain competitiveness compared to the product imported in other states of the country and national production would become disadvantageous”” added the executive president of Eletros, Jorge Nascimento. The Association Brazilian Association of Manufacturers of Motorcycles, Mopeds, Mopeds, Bicycles and Similar Products (Abraciclo), in turn, reported that it is also aligned with the tax reform proposal approved by the Chamber of Deputies, which includes maintaining incentives for the Manaus Free Trade Zone until 2073 According to the entity, the Manaus industrial hub concentrates 98% of national motorcycle production, making the region the largest two-wheel hub outside Asia. “ZFM’s competitive advantage must be maintained to ensure the security of investments already made and predictability of the future, essential factors to boost growth throughout the country”, added Abraciclo, in a note.

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