Tax reform provides for tax ‘cashback’ for the poor – 02/14/2023 – Market

The special secretary of the Ministry of Finance, Bernard Appy, said this Tuesday (14) that the tax reform provides for a system of tax refunds for low-income families – which has been called “tax cashback”.

“It is a very efficient way of carrying out distributive policy, and we are sure that, with this mechanism, the impact of the tax reform —although the main objective is to stimulate growth— will be positive from the distributive point of view”, he said during the event. from the BTG bank.

The secretary explained that the definition of the target audience will be made later, but cited the example of people registered in CadÚnico, and who could have back the tax corresponding to spending on basic food baskets.

“For the poorest 10% [da população]the effect of this is greater than completely exempting the basic food basket.”

According to him, the measure aims to relieve the person instead of the product, which ends up having a fairer effect, given that the richest part of the population also benefits from exemptions, without being necessary.

During the event, Appy stated that the richest will not be harmed by the tax reform, but will benefit less than the poorest.

When talking about the resistance that the theme must suffer in the National Congress, the secretary said that the reform is a positive-sum game, in which all of society wins, but with greater benefits for the population with less income and for the states and municipalities that today they are underprivileged.

“It is a game in which the poorest earn more than the richest, and it is a change in which the poorest federative units benefit more than the richest,” he said. “Does it mean that the richest will suffer? No, they will benefit less than the poorest.”

Appy defended the benefits of tax reform, arguing that, in the end, all of society wins, given that the change has the potential to correct distortions and help the economy grow.

Bernard Appy was the mentor of PEC (Proposed Amendment to the Constitution) 45, which is one of the most advanced in Congress. Authored by deputy Baleia Rossi (MDB-SP), the proposal replaces five current taxes (PIS, Cofins, IPI, ICMS and ISS) by the IBS (Tax on Goods and Services).

In the Senate, PEC 110 has a similar objective. The two compete to be the basis for the discussion of a reform that aims to simplify Brazilian taxation and make it more similar to the model followed by developed countries, which charge IVA (Value Added Tax).

During the event, Appy also said that the reform will have a positive distribution effect for federal entities. According to him, the poorest states will gain from the reform, whether based on PEC 45 or PEC 110.

Both intend to change the current criteria for distributing the ICMS share — a mechanism that allocates to municipalities the resources that states collect in their territory.

In the secretary’s evaluation, the current system allows for distortions. There are cases in which small towns with a large production unit receive “a truckload of money completely out of touch with the municipality’s needs”.

No federal entity will be harmed by the tax reform, says Appy

During the event, Appy explained that, with the approval of the reform, the distribution of revenue for states and municipalities would change over a period of 40 to 50 years. However, he defended that there will be no harm done, even among those who will lose participation in the total collected.

“When you incorporate the positive effect of the tax reform on the growth of the economy and, therefore, on revenue, what we can see is that practically no entity of the federation is harmed. In the end, practically everyone ends up being benefited by the migration to a new model,” he says.

The declaration is an attempt to reduce resistance from municipalities. During the discussions, mayors have complained about a possible loss of revenue for the Union and of political autonomy. According to them, a single tax would imply a lower ability to tax.

However, during the event, Appy stated that the two proposals maintain the autonomy of federal entities to set the basic rate of the single tax. Municipalities and states could not choose goods that will have a higher or lower tax, but they would determine the basic rate.

Tax reform was chosen as one of President Luiz Inácio Lula da Silva’s (PT) priorities for the first half of the year.

In the Chamber, the working group that will debate the issue should follow the strategy used in the Social Security reform to speed up the approval of the text. The mayor, Arthur Lira (PP-AL), signaled willingness to take the text to plenary between 60 and 90 days.

Despite the joint effort between the Executive and Legislative branches, the approval of the tax reform should be the main battle for the new government. A PEC needs the endorsement of 308 of the 513 deputies, and 49 of the 81 senators.

The deadline for approval, including, is still uncertain, with members of the government calculating different dates. Finance Minister Fernando Haddad and Vice President Geraldo Alckmin say the proposal should be approved in the first half of this year.

The Minister of Planning, Simone Tebet, indicates more caution. In an event this Monday (13), she said that the reform could be approved this year, but that she cannot “tell in how many months”.

MOST ADVANCED PROPOSALS AT THE CONGRESS

1) PEC 45 – report by Deputy Aguinaldo Ribeiro

• Replaces five taxes (PIS, Cofins, IPI, ICMS and ISS) with a Tax on Goods and Services and a Selective Tax on cigarettes and alcoholic beverages
• Six-year transition in two phases, one federal and the other with ICMS and ISS
• Replaces the exemption of the basic food basket with the refund of taxes for lower-income families

2) PEC 110 – Senator Roberto Rocha report

• Creation of CBS (Contribution on Goods and Services) with merger of PIS and Cofins
• Creation of the IBS (Tax on Goods and Services), with the merger of ICMS and ISS
• Replaces IPI with a selective tax on items harmful to health and the environment
• Creation of the Regional Development Fund, supplied with IBS resources
• Tax refunds for low-income families

Sources: Chamber of Deputies and Federal Senate