Tax reform: businessmen try to get exceptions – 03/25/2023 – Market

Even with the government’s firm position in defense of a tax reform without exceptions, sectors are already articulating to try to obtain a favored treatment in the text amid fears of an increase in the tax burden and rising costs.

Since discussions resumed earlier this year, the main voice against the adoption of a distinction between sectors is that of the Extraordinary Secretary for Tax Reform, Bernard Appy.

In an interview with Sheet at the beginning of March, he defended that the reform be as homogeneous as possible and stated that “the more exceptions there are […]the higher the basic rate must be in order to maintain the tax burden”.

On Tuesday (21), at a meeting of the FPE (Parliamentary Front for Entrepreneurship), Appy again defended that the text avoid flexibility as much as possible. “We know that, for political reasons, there will end up having some exceptions,” she said. “Ideally it should be as little as possible, the rule as homogeneous as possible and designed in a way that gives the least possible distortion.”

The following day, at a CNSaúde (National Health Confederation) event, he recognized that it is “very likely that some sectors will end up with different treatments.” “Most likely the health sector will be among those sectors that will receive differentiated treatment, there are already signs of this”, he added. “The decision whether there will be or not will be up to the National Congress.”

In the working group that discusses the topic, sectoral confederations are beginning to be heard in audiences this week — on Wednesday (29) there is still a forecast of participation by Minister Simone Tebet (Planning and Budget).

In the first attempt to discuss the reform, in 2021, a list of sectors received the signal that it could have some differentiated treatment in the final text.

Agricultural, agro-industrial, fishing and forestry activities, education, health, public and road freight transport and charitable social assistance entities are cited in the substitute presented by Deputy Aguinaldo Ribeiro (PP-PB), rapporteur on the mixed committee that analyzed the merits of the PECs 45, by Deputy Baleia Rossi (MDB-SP), and 110, by the Senate. The collegiate ended up extinct in May 2021 due to lack of regimental forecast, in the words of the mayor, Arthur Lira (PP-AL).

In the 2023 discussions, health, education and agribusiness are cited as potential exceptions to be included in Ribeiro’s final text, chosen again to report on the PEC in the working group created by the same Lira in the Chamber.

The sectors defend the need for a differentiated treatment. CNSaúde commissioned a study from LCA Consultores which pointed to a charge increase from 9.9% to 25% to 32%, if a single tax rate is adopted.

“The secretary’s arguments are that there will be an increase in the GDP and that the bureaucratic facilitation of the system would bring gains. But these gains are possible or not”, says the president of the confederation, Breno Monteiro.

He argues that the health sector has imbalances, with plan operators presenting a deficit and an increase in the cost of inputs because of the pandemic. “If we still have to pay more tax, it would be another complication for the system at this time.”

“We need to be treated differently because it is not a request of the Brazilian health system, this is the international experience [com o] Single Value Added Tax, [que] shows that in 80% of the countries there is this treatment.”

With an eventual increase and transfer of costs, he adds, there could be a flight of people from the private sector to the public health system.

In education, the argument follows a similar line. Professor Amábile Pacios, from the Forum of Representative Entities of Private Higher Education, says that the private sector, with basic education and higher education, relieves the State from paying BRL 280 billion. “This means that, if we cease our activities, this is the money that the government has to put [na rede pública] to support the children and young people who are studying with us”, he says.

“There can no longer be encumbrance for us, because it would directly mean an increase in tuition.” Pacios also defends that the differentiated treatment is really differentiated. “We always try to find out what differentiated means. Because, all of a sudden, he can give an increase of 20% for everyone and 19% for education and call it differentiated.”

The agro also cites the international experience to defend that the sector has a special regime in the reform.

“We carried out surveys that show that countries that use VAT, mainly those of the OECD, have favorable treatment for agricultural activities. Of 35 countries, four do not have a favored rate for agro, which are Chile, Denmark, Estonia and New Zealand . These are countries that don’t have a tradition of agricultural production like Brazil”, says Renato Conchon, coordinator of the economic nucleus of the CNA (Confederation of Agriculture and Livestock of Brazil).

He says that this treatment is necessary to reduce the price for the population and guarantee the competitiveness of the products in the international market. “It is this model that we want to apply here.”

In the PEC 45 2021 report, the special regime for the sector was temporary, which is criticized by Conchon. “This differentiated treatment would only be foreseen during the tax transition. After the IBS [Imposto sobre Bens e Serviços] started to take effect, this transition would end and it would be a single rate for everyone. It’s what we don’t want. We want favored treatment for agriculture and other sectors permanently in the Constitution.”

He mentions another tax problem in the sector, which would be the collection of the ITR (Tax on Rural Territorial Property). “We are going to continue with this problem because the discussion is not being discussed at this moment in the National Congress. That is, it is imposing an increase in the tax burden in the consumption tax reform, and our current problems, one of them the ITR, will not be solved.”

In the case of the transport sector, which was also expected to have a special transitional regime in the 2021 replacement, the criticism involves the lack of transparency about the data. “We have been asking since the previous government that Appy demonstrate the numbers, that the Federal Revenue demonstrate the numbers to justify the rate. Why does it have to be 25% or 32%, as the Revenue says?”, questions the president of the CNT (National Transport Confederation), Vander Francisco Costa.

“Who has benefit to attract investment is the industry. The reform comes to be able to reduce the tax burden of the industry. We have nothing against that. We are even willing to pay a little more tax to be able to have a more thriving industry. But benefit the industry and harm us, instead of simplifying the system, complicating the system more with a period?

For him, payroll tax relief would help to offset this increase in the tax burden that would result from the reform, in the sector’s calculations. “These are two different situations. In cargo transportation, the increase will be passed on to the next scale, it will increase the final product. But passengers are complicated”, he says. “If you take an urban passenger transport rate, which today pays ISS from 3% to 5%, and add 25% [de tributo], increases the bus fare from 20% to 30%. It’s a problem.”

The CNT defends three rates: a basic one, which is for most sectors; a lower rate for essential services such as health, education and passenger transport, and a selective rate to increase the tax on items such as tobacco and alcoholic beverages.

Exemption on salaries is defended by the services and commerce sectors. Luigi Nese, president of CNS (National Confederation of Services), says that the biggest burden on the sector is salary, which, he says, can represent up to 80% of the cost. “If the payroll is not exempted, this tax reform will not pass at all. The burden on the services sector, and mainly on the liberal professionals sector, will be enormous.”

He believes that the measure would minimize the impact on the service sector, reducing costs and offsetting the increase in the tax burden estimated by the sector. Nese also defends the creation of a tax on financial transactions, like the extinct CPMF (Provisional Contribution on Financial Transactions). “We are not discussing the tax that everyone wants to charge today on the large financial transactions that are made by Google, Amazon, Microsoft.”

Guilherme Mercês, director of Economy and Innovation at CNC (National Confederation of Trade in Goods, Services and Tourism), said that there is still no clear and objective way to guarantee full cumulativeness. “It will depend on the regulations of complementary laws, as it is today. Several laws were passed or some loopholes remained that generated legal uncertainty.”

He says that full non-cumulativeness is important so that there is no doubt about where the company will obtain credit. In addition, he argues that it is important to maintain the Simples Nacional model.

“What worries us here? If I launch another model where I will have full use of credits and I leave Simples as it is today, I will kind of leave Simples companies in a very unfavorable situation in relation to those others that have credit in the new model”, he said. “Nobody will want to buy from Simples companies, because they will buy without their credit. You create a market problem for Simples companies.”

In Industry, the sector most favorable to the reform model discussed today in Congress and supported by the government, the expectation is that distortions will be eliminated. “Technically, I have no doubts that the ideal is the single rate. But politically it is difficult. The CNI understands that some favored treatments make sense. Health, education service, agriculture and agroindustry, civil construction, financial system must have a treatment different”, says the executive manager of Economy, Mário Sérgio Telles.

He criticizes the accumulation of taxes in the chain. “We have a study that shows that the Industry arrives with 7.4% of residue at the end. The imported one comes with zero. We start to compete losing 7%. Agriculture and services have more residue. The agricultural product that arrives at the end it has 12% and the service, 11.6%”, he adds.

For Venilton Tadini, chief executive of Abdib (Brazilian Association of Infrastructure and Basic Industries), the sector’s concern is with the increase in the price of services and with the destination of tax credits. “There is a lot of investment to be made in these concessions and this has to assume that the credits will be quickly used”, he said. “Depending on each company, on the project it has, it has a different incidence. The concern with infrastructure is in relation to public service and with the construction industry, which also takes the cost of investment.”

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What do the sectors want?

Industry and Infrastructure – They want to put an end to distortions; Industry criticizes cumulativeness

Commerce and Services – Defends payroll exemption, which, in the sector’s view, would offset the increase in the estimated tax burden

Transport – Disagrees with the transition and defends the extension of the payroll exemption to compensate the sector; also advocates a three-rate model

Agribusiness – Wants differentiated treatment as adopted in some OECD countries, rejects the transitional nature of the special regime and wants to discuss ITR (tax on rural territorial property)

Health – Mentions exemption in almost 80% of countries and differentiated rate in another 6% due to the essential nature of the sector

Education – Defends the adoption of a lower rate for the sector —and one that is significant