Senate approves Tax Reform in the first round in the Plenary

Senate

The rapporteur highlighted that the proposal will not represent an increase in the tax burden

Brasilia DF) – Under discussion in Brazil for 30 years and considered the main challenge of the economic agenda of the first year of the Lula government, the tax reform (PEC 45/2019) reached another stage this Wednesday (8). The Senate Plenary approved the proposal in the first round, with 53 votes in favor and 24 against and no abstentions. 49 votes in favor were required (3/5 of the House’s composition). The Plenary will now vote on the second round.

The proposal presented by deputy Baleia Rossi (MDB-SP) gained new contours in the hands of the Senate rapporteur, Eduardo Braga (MDB-AM), who incorporated a series of changes. The essence of the PEC is the simplification of taxes and the model in operation in the country. The text provides for the replacement of five taxes (ICMS, ISS, IPI, PIS and Cofins) with three: Tax on Goods and Services (IBS), Contribution on Goods and Services (CBS) and Selective Tax (IS). The proposal also provides for exemptions for basic food products and a series of other measures.

The rapporteur highlighted that the proposal will not represent an increase in the tax burden. The text provides a “lock” for the collection of taxes on consumption, that is, a limit that cannot be exceeded.

“The taxpayer cannot continue to support the burden of the state. If the fear is that approval of the PEC will lead to an increase in the tax burden, we are convinced that the model guarantees that this will not happen”,

Braga said.

In total, the text received around 830 amendments during the discussion in the Senate. Braga accepted part of the suggestions for changes proposed in the Plenary.

The government leader in Congress, senator Randolfe Rodrigues (Rede-AP), stated that the approval of the PEC is “historic” and that it will guarantee a reduction in taxes for the poorest population. He highlighted that the text provides for a zero rate for rice and beans and other items in the basic food basket. He countered criticism from the opposition by stating that previous governments supported tax reform, but changed sides:

“This is what we are voting for: reducing taxes. Now, I also understand why the opposition today does not want the tax rate on meat in the basic food basket to be reduced to 0%. They are upset because Brazilians, after President Lula’s government, started eating picanha again. From a tax rate currently weighing 34%, we, with the introduction of VAT, will now have a tax rate of 22% to 27.5%”,

said Randolfe.

The main criticism from opposition senators was the excess of sectors and products that will be subject to different regimes from the general rule of the future VAT. The opposition leader, senator Rogerio Marinho (PL-RN), stated that the reform will in practice increase the tax burden for the majority of the population. According to the senator, the proposal was “disconfigured” and is far from simplifying the current model.

“Those who were better able to shout, to fight, to make the lobby work are included in the project at hand. Those who did not have this strength or this care will be forced to bear a tax burden – surprise me, gentlemen – that will be the largest in the world. We are talking about a very serious matter, on which there is no impact study. What we actually have is the prospect of a VAT higher than 27.5%”,

said Marino.

Among the sectors that will have different regimes according to the text are transport, fuel, sanitation, health plans, real estate, prediction games, lotteries, financial institutions and banks. When rejecting amendments to remove sectors from this list, the rapporteur reinforced that they already have differentiated regimes and pay a lower tax burden than the national average.

For senator Oriovisto Guimarães (Podemos-PR), who presented a substitute rejected during the Plenary vote, the tax system will become even more complex during the transition period, because the current taxes will coexist with the new ones. He also warned about the risks of the reform for the federal balance. According to him, states and municipalities will lose revenue.

“What are we going to have? Governors with saucers in their hands, who no longer have the capacity to receive their own tribute and who are left in the hands of a management committee or federal council. What will we have? Mayors with saucers in their hands, who can no longer have their ISS”,

criticized Oriovistus.

*With information from Agência Senado

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