Tax reform: proposal is good, but will face resistance – 06/06/2023 – Market

The report with the tax reform guidelines, presented this Tuesday (6) in the Chamber of Deputies, was seen by experts in the field as an evolution in relation to the proposals that were under discussion in Congress since 2019 from a technical point of view and also political.

There are still, however, many points to be clarified, such as the design of differentiated rules for some sectors. One of the main points without consensus is still the taxation of the basic food basket.

Breno Vasconcelos, a professor at Insper and at FGV’s São Paulo Law School and partner at Mannrich e Vasconcelos, highlighted the political consensus reached within a group of deputies representing different regions of the country.

For him, the group found good solutions for some sectoral pressures. There will be, for example, a standard rate without differentiation between goods and services, as in other countries. Currently, Brazil has a higher taxation in the first case.

Some exemptions are foreseen, but they will be applied to some items in the consumer basket, also following the international experience, and not to sectors as a whole.

Regarding food, the deputies left the question open: is it possible to maintain the uniform exemption for all Brazilians or create a system to benefit the low income more than the rich, returning the tax through a “cashback”.

A study by the Ministry of Finance in 2017 shows that a reduction of BRL 17 in the basic food basket is necessary to achieve the same effect of reducing inequalities as returning BRL 1 for those who are on the Bolsa Família, for example.

“This is evidence that it is better to work with cashback than with the benefit of the basic basket, but there was no consensus on this [entre os deputados do grupo de trabalho]”, says Vasconcelos, who also highlights the propositions of Congresswoman Tabata Amaral (PSB-SP) related to the tax issue from an environmental point of view.

Renata Elaine Ricetti, coordinator of the postgraduate courses in Tax Law at the EPD (Escola Paulista de Direito), says that there have been advances in relation to previous proposals, but believes that the proposal, with the current guidelines, is unlikely to be approved.

For her, the reform still increases the complexity of the current system, by proposing a transition period in which the two tax systems, the new and the old, will coexist. “There is a need for reform, but we have to be careful not to create a much more complex system, especially in this transition period.”

Ricetti also considers that the tax return system is unfeasible in a country like Brazil.

“Cashback is the worst point of the reform. We are not in a European country where everything works well. Despite having the Rio Grande do Sul model [o Devolve ICMS], which seems to be working, I don’t give it a few years to go wrong. There will be a lot of fraud problem. We see this in Bolsa Família.”

The CLP (Public Leadership Center) defends the return of taxes focused on the poorest. The entity makes partial exceptions to some differentiated treatments, such as the maintenance of the Free Zone of Manaus until 2073 and the application of a differentiated rate for education, health and public transport without determining a limit for these benefits.

For the organization, the proposal aims not only to simplify the tax system, but also to make it more effective and fair.

“The effectiveness of this reform will depend on its proper implementation, rigorous monitoring and continuous adjustments to ensure that it meets its goals and promotes a more efficient and fair tax system for all Brazilians”, says the entity.

In a note, the CNC (National Confederation of Commerce) states that the success of the tax reform depends on a fundamental tripod, composed of different rates for the service sector, full non-cumulativeness and credit for Simples Nacional companies.

The CNC proposes a maximum rate of 10.7% for the entire service sector, so that there is no increase in the sector’s tax burden. The general rate is estimated by some tax experts and economists at 25%.