Tax reform divides mayors and governors, who ask for more resources – 03/21/2023 – What is this tax

Representatives of governors and mayors showed that there are still restrictions on the reform of consumption taxation under analysis in the National Congress by the regional governments.

The consensus around some points obtained in 2019 by the states has not yet translated into a unified position in the current administrations, and the mayors of large cities maintain the position contrary to the inclusion of their consumption tax (ISS) in the reform.

“Now in 2023, with the new formations of state governments, we are reviewing all these assumptions that led to consensus in 2019. The first one that we already have consensus on is that we defend the creation of a VAT, single or dual. by value-added tax, but we are not going to stick to a single or dual model”, said Carlos Eduardo Xavier, president of Comsefaz (committee of state finance secretaries), during a public hearing in the Chamber this Tuesday (21).

He defended other points of the reform, such as expanding the tax base, ending the list of services that are on the ICMS or ISS list, the destination principle to end the tax war, and that each state and municipality set its rate of the new tax, in addition to maintaining the state tax authorities.

“The states defend the tax reform because we believe that with it we will have economic growth, better income and wealth distribution and job creation”, he said.

Edvaldo Nogueira, president of the FNP (National Front of Mayors), expressed restrictions on the reform and defended PEC 46, from Simplifica Já, which does not end the ISS. The Chamber’s working group is working on two other proposals (PEC 45 and PEC 110), which also affect the ISS.

The FNP, which represents municipalities with more than 80,000 inhabitants, says that the three texts should be analyzed and that it is still necessary to present calculations to prove that all entities of the Federation benefit from the other two proposals.

Nogueira also said that a tax reform should include an increase in the participation of municipalities in tax collection.

“We need a reform in which all municipalities win. Municipalities need to increase their collection. They need more resources”, said Nogueira.

“No one is against tax reform. Everyone wants reform. But where is the complexity? It is not in the ISS. The problem is in the ICMS and in the federal government”, he affirmed. “There is Simplifica Já, which in fact is not a tax reform, it is a simplification of the path for a future reform, which must also be taken into account, preserving the ISS.”

Carlos Eduardo Xavier, from Comsefaz, also stated that a revision of the federative pact is necessary, so that states and municipalities are able to meet the obligations they have with their populations.

Paulo Ziulkoski, president of the CNM (National Confederation of Municipalities), an entity that represents more than 5,000 municipalities, said that he will wait for the working group’s report before expressing support for the text. He recalled, however, that the entity supported PEC 110, which provides for a new federal tax and another state-municipal one, which incorporated the group’s suggestions.

He placed among the premises to support the text the change of collection from origin to destination and the transition rules that guarantee the maintenance of revenues for a period of 20 years.

He also said that the reform maintains the autonomy of municipalities and that the Simplifica Já proposal does not represent a tax reform. “The mayors, the majority, are in favor of the reform,” he said.

During the audience, Ipea (Institute for Applied Economic Research) economist Sérgio Gobetti presented projections that show that, without considering the transition mechanism to avoid loss of income, 85% of Brazilian municipalities gain from the reform, which includes almost half of the capitals. With the transition rule, this impact is diluted over time.

If projections of greater economic growth due to the reform are considered, the percentage of winners rises to 98%.

According to Gobetti, the 61 municipalities with the highest ISS collection currently account for 43% of this revenue, although they represent only 12% of the population.

He stated that the data also show that, from 2010 to 2019, the ISS tax base did not grow more than that of ICMS.

“Without unifying ISS and ICMS, there is no way to completely eliminate the cumulative nature of taxation in Brazil, nor significantly mitigate the regressivity produced by the lower taxation of services compared to goods.”

PRESENT LINK: Did you like this text? Subscriber can release five free hits of any link per day. Just click the blue F below.