Tax Reform may reduce tribute to buy weapons – 07/14/2023 – Market

A device included in the final moments of the Tax Reform vote in the Chamber may make room for the sale of weapons and other security equipment to private buyers to benefit from a tax discount, according to the assessment of members of the government and tax experts heard by Reuters.

The mechanism, which goes against the Lula government’s vision in this area, was received with concern by the Ministry of Finance, which has been defending behind the scenes that the Senate change the wording of the text or eliminate the device, two sources with knowledge of the ministry told Reuters. subject.

The item is among the last included by the rapporteur for the proposal in the Chamber, deputy Aguinaldo Ribeiro (PP-PB), to guarantee a 60% discount on the rate of the new consumption tax for “goods and services related to security and national sovereignty, security of information and cybersecurity”.

According to the text, for all sectors benefiting from the tax reduction, a complementary law will define in the future the operations with goods or services that will benefit.

The interpretation of government sources is that the device was poorly worded and creates a loophole for the term “security” to generate a broad interpretation, including purchases of equipment of this type by private companies and even individuals. For them, if the text is maintained, it is likely that the issue will generate disputes in court.

“It’s one of those devices that came on 47 minutes into the second half and no one really knows how to explain it,” said one of the officials, on condition of anonymity. “If I interpret it as national security, no problem, it is public purchase by the Armed Forces. However, if I interpret it as ‘security’, the door opens for everything: personal, private or public security.”

In the assessment of this source, in this “worst interpretive scenario” many could argue that the tax discount related to security should cover, for example, weapons and courses of fire.

The second authority stated that the wording was confused and that even the Treasury is still working to try to understand the extent of the benefit.

“I hope that the Senate improves the wording, or even that it reassesses this device,” he said.

This source said he was against the benefit, even if in the most restricted interpretation, with the argument that the security sector will already be favored by the Tax Reform even if it is outside a special regime. According to her, this will occur because in the non-cumulative system to be created, companies in the sector will generate tax credit.

FINAL WRITING

The current government has positioned itself against measures that encourage the sale and use of weapons in the country. On the first day of his term, Lula signed instruments to reorganize the gun control policy, which had been made more flexible by the management of his predecessor Jair Bolsonaro.

A third source, who participated in the preparation of the measure in Congress, said that the intention of the device is to simplify purchases by the government, which is normally forced to seek security goods and services abroad because Brazil is not competitive.

Arguing that the idea is not to facilitate the sale of arms or benefit private companies, she stated that it is necessary to wait for the final wording of the proposal, which has not yet been concluded by the Chamber, in order to draw conclusions on the subject.

In the assessment of tax specialist Ana Cláudia Utumi, partner at Utumi Advogados, the government’s concern is well founded. For her, if the intention was to facilitate government purchases, the device would not be necessary.

“Since there is a constitutional exemption from federal entities’ taxes, it was enough for the supplementary law to reinforce that, when the buyer was any of the governments, there would be no collection of the tax”, he stated.

Utumi also stated that the concepts of information security and cybersecurity were very broad in the text. “It could end up generating a lot of discussion,” she said.

Lawyer Marcel Alcades, partner in the tax area at the Mattos Filho office, says that the text leaves room for broad interpretation and may generate debates in court in the future.

“Taking a focus on private security companies, they would acquire with reduced load. Therefore, in theory, they could benefit. Another possibility is for the seller to transform the tax economy into margin, then he would benefit”, he said.