Tax reform: Federal Council can be changed – 07/04/2023 – Market

The tax reform rapporteur, Deputy Aguinaldo Ribeiro (PP-PB), is working on an intermediate proposal to try to resolve the impasse surrounding the centralization of IBS (Tax on Goods and Services) collection in the so-called Federative Council.

The IBS is the tax that will result from the merger of the state ICMS with the municipal ISS, if the reform is approved by Congress.

In its replacement, Ribeiro proposed the creation of the Council, which would have the attribution of collecting the new tribute and distributing resources to states and municipalities.

The governor of São Paulo, Tarcísio de Freitas (Republicans), resists the idea and defends a clearing house mechanism, according to which the states remain responsible for the collection, but later transfer the installments that belong to other states.

The proposal under construction now would be a compromise between the two models. According to people involved in the discussions, there would be a withholding of the tax collected throughout the production process within the municipalities (such as in the acquisition of inputs), until the good or service is sold to the final consumer.

If all operations occur between municipalities in the same state, the clearing house would carry out the distribution of resources within the state itself.

If there are interstate operations, the process is a little more complex. Several experts have pointed out that the clearinghouse model creates a problem for taxpayers to collect their tax credits to offset the amount payable in taxes.

According to interlocutors, the proposal under discussion foresees in this case the withholding of a part of the tax value from the Federative Council. This portion would work as a kind of guarantee for taxpayers to redeem their credits, even if the payment was made in another state.

Publicly, the rapporteur has avoided giving details on the progress of this discussion, given the sensitivity of the topic.

At the end of a meeting with the Republicans, Ribeiro only told journalists that the retention model is also the target of criticism. “There is discomfort from some states and municipalities,” he said.

According to him, the search is for a “solution that can contemplate everyone” without compromising the central structure of the tax reform, which is the creation of a IVA (Value Added Tax) with full use of tax credits paid throughout the chain and guarantee of transfer of these credits even in interstate operations.

In government, the assessment is that the decision on the subject should be made by the rapporteur. Even so, technicians have warned Ribeiro about the greater complexity of the model proposed by São Paulo and also of the intermediate format under discussion in the Legislative.