Senate wants to limit consumption tax burden, but Congress releases spending – 10/25/2023 – Vinicius Torres Freire

In the Senate’s version of Tax Reform, there is a limit on the tax burden on the consumption of goods and services. It’s not a good idea, made even worse by the calculation of this tax ceiling, based on average income from 2012 to 2021.

In these years, there were drops in revenue due to years of terrible recessions (2015, 2016, 2020) and poor GDP growth. The calculation particularly harms the federal government.

It is not the only one and perhaps it will not even be the biggest problem of Senate reform. But it’s bad news. From expanded old bad things, we have more special regimes. That is, a reduction in the tax rate for a certain type of company or sector, which increases the general average tax rate. For example, benefits for wealthy firms of lawyers, doctors and other professionals. What is the reason for the distinction?

As of this Wednesday (25), there were 693 amendments to the reform of the Chamber. Many were not accepted in the report by senator Eduardo Braga (MDB-AM). But the game is still going on. Things could get worse, with more favors.

Maybe someone would consider it a good idea to impose a load cap on consumption. It may be, as long as, to compensate, it is viable to increase the collection of other taxes, particularly on income.

If this is not the case, governments’ total revenue may be insufficient. There would be even more deficit. The problem would be contained if there was a spending cap. Hmm.

Almost no one wants a spending cap. Michel Temer’s roof was destroyed, which was in fact unviable. Luiz Inácio Lula da Silva approved in Congress the mobile ceiling of the so-called “fiscal framework”, but it is uncertain when the spending burden (in relation to GDP) will fall, which depends on years of good economic growth.

The majority of Congress does not want increases in other taxes. When it can, it increases expenses or reduces government revenue, as it is doing these days and during the reform itself (with the increase in the Regional Development Fund, in the federal account).

The limit of federal taxes that will be merged into the CBS (Contribution on Goods and Services) would be 5% of GDP (half a percentage point below the 2010-2014 average). This is the average PIS/Pasep, Cofins and IPI burden from 2012 to 2021, as predicted by the Senate report. This account lacks the selective tax (on harmful goods), of which nothing is known.

The burden of the new state and municipal tax on goods and services, IBS, would be 7.74% of GDP (average of ICMS and ISS). In total, 12.74% of GDP, therefore. This arithmetic is based on the National Treasury Secretariat’s tax burden estimate.

One objective of Tax Reform is for it to be neutral. That is, it does not initially result in an increase in the tax burden. All good. In terms.

But it is necessary to make a reasonable calculation of this initial limit of the tax burden on consumption. Afterwards, the load may increase or decrease, depending on the rhythms of the different sectors of the economy. Any adjustments must be made by the government and Congress, according to the context. Plastering the future is a bad idea. Furthermore, given the general limit, if the federal burden of taxes on consumption increases, will that of states and cities have to fall (or vice versa)?

The problem won’t appear soon. The first load measurement would take place in 2027 and 2028; the adjustment would begin in 2030. It seems distant, but issues like taxation remain on hold for decades. Speaking of which, the time to implement the reform is still desperately long.

Furthermore, consumption tax limitations will also influence the revenue to be projected in the income tax reform — at least we hope that such a change will come in a particularly iniquitous type of taxation.

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