Tax reform may gain lock for new tax – 07/11/2023 – Market

The rapporteur for the Tax Reform in the Senate, Eduardo Braga (MDB-AM), considers defining a lock for the rate of new taxes created by the PEC (proposed amendment to the Constitution). Thus, the charge on the consumption of goods and services would need to respect the minimum and maximum limits established in the text.

The initiative will still be discussed with the other senators, but it is conceived as an attempt to reduce one of the main uncertainties that surround the text approved by the Chamber: what will be the final rate on each activity.

“I think maybe it’s prudent to have a constitutional command of minimums and maximums in the IBS [Imposto sobre Bens e Serviços] and for CBS [Contribuição sobre Bens e Serviços]. If not, it will leave it to a complementary law, which is an infraconstitutional matter, with a lower quorum,” he told Sheetemphasizing that it is still an idea and intends to hear parliamentarians on the subject.

Braga argues that the ICMS (state tax that will be extinguished by the Reform) already has its parameters defined in the Constitution. For him, leaving the issue for further regulation in a supplementary law, as provided for in the text approved by the Chamber, could make the new charging criteria at the mercy of political surprises.

During the proceedings in the Chamber, the Ministry of Finance avoided presenting estimates on the rate on the grounds that the calculation depends on different variables – including the amount of goods and services covered by favored treatments or reduced charges.

As the intention is to maintain the current level of collection, the more exceptions, the higher the rate. Previous estimates pointed to a level close to 25%, already adding the collections of the federal CBS and the IBS of states and municipalities, but some specialists fear that the percentage will be higher in view of the concessions made to sectors in the final stretch of the vote by the deputies.

“The Chamber played a trick, and Bernard Appy [secretário extraordinário de Reforma Tributária do Ministério da Fazenda] also did a trick. They discussed the Reform a lot, but nobody discussed the rate”, said the rapporteur in the Senate.

Braga said he now wants to adopt full transparency in the debates, which includes exposing the rates and the effect on them of each change. In practice, the senator wants to show, with numbers, how much the tax burden of other sectors can rise with the granting of benefits to a certain good or service, or the size of the general relief if the option is to restrict the list of beneficiaries for favored treatment .

In the evaluation of the parliamentarian, who is MDB leader in the House and one of the most influential senators, this could help in the discussion of exceptions. “You will analyze the cost-benefit, how much it costs to make an exception for a certain activity. I think this is fundamental for us to be able to ask the Brazilian people ‘Are we willing to do this? It will cost so much'”, said Braga.

“They question the tax benefits a lot, because they impact the economy. Then we make tax exceptions, which is a form of tax benefit, and we have to quantify this. Ask if this is in line with what the population wants,” he said.

Although he demonstrates willingness to discuss the list of exceptions, another sensitive point of the proposal, Braga avoids giving clues about which ones he considers problematic. In the final stretch, the Chamber’s rapporteur made the regime more flexible for segments ranging from football clubs to churches.

“There are exceptions that I can say I find strange. But I don’t have an opinion yet,” he said. “Does the exception for bars make sense? I don’t know. Looking at it that way, at first, it’s strange,” he added, in the only specific example cited during the interview.

“I could name several [pontos], but I prefer to stay only in bars, to say that it is strange to say the least that you have a tax exception for bars. I can’t understand the logic, but I respect it and we want to assess the cost-benefit and logic of this exception,” he said.

The rapporteur also indicates that he will make changes in the Federative Council – the body responsible for the management and collection of the IBS, as well as for the transfer of resources that belong to each entity of the federation. The format of the Council was one of the main targets of resistance among the governors, who saw a loss of autonomy.

The main opposing voice in this regard was the governor of São Paulo, Tarcísio de Freitas (Republicans). To attract their support, Ribeiro changed the collegiate voting system to give more weight to populous states, which benefits the South and Southeast — including São Paulo. The change, however, displeased governors of the North and Northeast, for whom Brazil is a federation and there is no reason to give more voting weight to one state or another.

“Only here [no Senado] they are all the same. The relative weight here is all the same”, he said. “São Paulo has three senators, Bahia has three senators, Pernambuco has three senators […]. This is the home of the Federation,” he said.

“It is clear that Tarcísio’s support is always important, the support of all the governors is important, the support of the mayors is important. But, at the end of the day, what will count is the senator’s opinion”, he said.

Braga also indicated that he should resume the device that ensures tax incentives for automakers. At the Chamber, Ribeiro included a device at the last minute for the Chinese automaker BYD (Beyond Your Dreams), which will be installed in Camaçari, Bahia. Stellantis, which has a factory in Goiana (PE), would also be contemplated.

Government allies claim that it was a request from President Luiz Inácio Lula da Silva (PT). In a defeat for the Executive, however, the article was overthrown by a difference of just one vote.

The Senate rapporteur attributed the result to a “miscommunication” by the government, which failed to place the 308 votes needed to maintain the text and did without the support of important figures, such as PT leader in the Chamber, Zeca Dirceu (PR). .

Braga also indicated that he intends to maintain the total exemption from the IBS and CBS for basic basket products, despite economists criticizing the lack of focus of this policy, which includes all consumers of these items, whether low or high income.

“Are you going to differentiate who buys rice or who buys beans?” said the senator. For him, the problems that exist today in the tax exemption policy for the basket can be corrected with greater rigor in defining the list of contemplated products. In the current format, noble proteins such as salmon end up being exempt because they are part of the fish group.

Braga also praised the treatment given in the Reform to the Manaus Free Trade Zone, which is located in his state, Amazonas. In the Chamber, deputies approved the creation of the so-called Sustainability and Economic Diversification Fund, to help the region in the transition to a new economic model.

Today, the region has competitive advantages because the goods produced in the Free Trade Zone are exempt from taxes such as IPI (Tax on Industrialized Products) or have presumed ICMS credits (used to reduce the amount paid to state coffers). As these taxes will be extinguished by the Reformation, there was great fear regarding the future of the region.

According to Braga, without special treatment for the Free Zone, the Reform could end with 15% to 25% of economic activity in the Amazon in two decades.

The senator pointed out that the solution was built together with Minister Fernando Haddad. “The Chamber did 95% of the work, because otherwise I would be a big problem for the Reform here. And [agora] I ceased to be a problem for the Reformation. I’m an enabler,” he said.