Tax reform: proposals provide for ‘cashback’ for low-income families

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This information was provided by the extraordinary secretary for Tax Reform at the Ministry of Finance, Bernard Appy. Model, however, would have to be regulated by means of a complementary law, after the approval of the PEC by Congress. The idea is to reduce the burden of taxes on the poorest. House and Senate tax reform proposals propose unification of taxes JN The proposals for tax reform on consumption that are being discussed in the National Congress provide for a “cashback”, that is, a return of part of the tax paid, to low-income families. The information was provided by the extraordinary secretary of the Ministry of Finance for tax reform, Bernard Appy. “The new tax model provides for a tax return system for low-income families, ‘cashback’, an efficient way of carrying out distributive policy”, he recently declared at a public event. According to the secretary, however, this would be defined by means of a complementary law, only after the approval of the PEC of the tax reform. Two bills are pending in the National Congress on the subject (PECs 45 and 110). The idea, therefore, is to reduce the so-called regressiveness of the Brazilian system, that is, the high burden of taxes for the low-income population. Currently, much of the tax burden is concentrated on consumption, which harms the poorest. The government’s idea is to keep the weight of the burden on consumption unchanged, which would require a high rate of 25%. How would it work? According to the secretary of the Ministry of Finance, whoever is on the Single Registry of government social programs, CadÚnico, may benefit from this tax refund in the future, although the model has not yet been closed. “Whoever is on CadÚnico, buys, gives the CPF, then later you see the tax that was levied on that purchase, and you return it to all families with a roof, obviously”, explained Bernard Appy. “For example, I want to return the tax corresponding to spending on the basic basket of the poorest 30%, an example, in this case, for the poorest 10%, the effect of this is greater than relieving the basic basket, a focused measure. exempting the product, exempts the person”, he added. Compensate high taxes The institution of a tax rebate would be a way to compensate the collection of a 25% rate on consumption, one of the highest in the world, for needy families. The logic is that the low-income population would pay a full rate of 25%, but would later receive a part of the tax paid back, the so-called “cashback”. The 25% rate is not yet closed, it is an estimate of the economic area to maintain the current tax burden on consumption (without increase or loss of collection). Tax reform: with high consumption tax, prices increase too? Understand The rate by itself does not necessarily represent a generalized increase in prices. This is because the tax burden of some products in the current system is higher than the 25% incidence of VAT — which would mean, in these cases, a reduction in values ​​for the final consumer. There are, however, sectors that are below this average and should reap upward readjustments, such as the services sector. This 25% charge, which is being estimated by the government, would be within a non-cumulative system, through a value-added tax. This means that, along the production chain, taxes would be paid only once by all participants in the process. For example: if VAT is 20%, a product sold to the final consumer for BRL 100 will have a tax of BRL 20, which must be divided by the entire production chain (producer, wholesaler, distributor, retailer). This tax would replace at least five taxes: ICMS (state), PIS/Cofins and IPI (federal) and municipal ISS. Currently, these taxes are levied on different categories of products and services. Today, each stage of the chain pays taxes individually, and they accumulate until the final consumer. A selective tax would also be created on products harmful to the health of the population, but also to the environment. Another change is that the consumption tax (VAT) would be charged at the “destination”, that is, at the place where the products are consumed, and no longer where they are produced. This would contribute to fighting the so-called “tax war”, the name given to the dispute between states for companies to settle in their territories. Objectives The main objective of the reform is to simplify and facilitate tax collection. This measure is considered essential to unlock the economy and boost the country’s growth and job creation. Investors complain about the high number of taxes and the complexity of the Brazilian tax system. They estimate that this drives away investments. In the case of state ICMS, for example, there are 27 different laws in force in the country – one for each state, including the Federal District. With VAT, there would be a single legislation. The legal dispute between the State and taxpayers already amounts to BRL 5.4 trillion (data from 2021), an amount equivalent to 75% of the Gross Domestic Product (GDP). One of the objectives of the tax reform is to reduce, as a result of simpler rules, disputes in court. Analysts estimate that the consumer tax reform has the potential to raise Brazil’s potential GDP by at least 10 percentage points in the coming decades. Difficulties Discussed for decades and long awaited by the productive sector, the issue is considered a priority by the government to bring Brazilian rules closer to the rest of the world and reform a system that is seen as chaotic by businessmen and investors. Despite being urgent, the reform is considered complex from a political point of view. Different governments have tried unsuccessfully to carry out tax reform in recent decades, focusing mainly on taxation on consumption. The proposals ran into resistance of a regional, partisan nature and from different productive sectors, all represented in the National Congress.

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