Tax reform provides for zero rate for basic food basket – 07/05/2023 – Market

The president of the Chamber of Deputies, Arthur Lira (PP-AL), started the discussion of the PEC (proposed amendment to the Constitution) of the tax reform in the plenary of the House on the night of this Wednesday (5), after days of negotiation of the changes in the opinion of the rapporteur, deputy Aguinaldo Ribeiro (PP-PB).

Ribeiro presented a new version of the text, which includes changes in the transition to the new tax system and the creation of a National Basic Basket – a list of basic products consumed by families and which will have a rate reduced to zero.

“[A mudança] It’s so that no one keeps saying that we’re going to weigh the hand on the poor”, said Ribeiro when reading his opinion. “We want to give a clear signal to all of Brazil that we are doing a serious job.”

The statement was given after former president Jair Bolsonaro (PL) wrote a critique of the proposal on social media. “PT Tax Reform: a real punch in the stomach of the poor”, published on Tuesday (4).

The list of goods to be achieved will still need to be regulated, but the change meets a demand from different sectors and parliamentarians. In the previous version of the text, the products in the current basic basket would have a 50% discount on taxation, generating fears of an increase in the load —which was denied by the government and by Aguinaldo Ribeiro.

The rapporteur’s opinion was released shortly before 9 pm and has 142 pages. Opposition members asked for the discussion to be postponed so they could have time to analyze the document, but the request was rejected. Lira’s expectation is to vote on the text in plenary on Thursday (6).

“We are experiencing a historic day”, said Ribeiro, who reiterated the objective of simplifying the tax system in the country. “Let’s put an end to this fallacy that the reform will increase taxes. The reform will not increase taxes, it will simplify tax payments,” he said.

One of the main points of negotiation in recent days, the details of the governance of the Federative Council has not yet been contemplated in the text released this Wednesday. According to interlocutors, a new version to be released this Thursday should include this point.

There is a discussion to expand the voting power of states in the South and Southeast regions in the deliberations of the collegiate, which will be responsible for collecting the IBS (Tax on Goods and Services), which will replace the state ICMS and the municipal ISS.

This is a demand from the governors of these localities, who fear being trampled in decisions by states in the North and Northeast, which would find it easier to form a simple majority (they are 16 of the 27 states of the federation).

The text released on Wednesday night provides for the merger of PIS, Cofins and IPI (federal taxes), ICMS (state) and ISS (municipal) into one IVA (Value Added Tax). The system will be dual: it means that a portion of the rate will be administered by the federal government through the CBS (Contribution on Goods and Services), and the other by states and municipalities through the IBS.

The implementation of the taxes will begin in 2026, but full migration to the new system will only take place in 2033.

The rhythm of the transition, however, underwent adjustments in relation to what had been initially proposed by Ribeiro. According to the published text, the two new taxes will begin to be implemented in 2026. CBS would start with a test rate of 0.9%, and IBS, 0.1%.

“The objective of this stage is to know the taxable base, allowing the calculation of the CBS and IBS rates necessary to replace the current collection”, says the opinion. According to Ribeiro, the earlier application of the IBS meets a demand from the governors.

In 2027, PIS and Cofins would be completely extinguished and replaced by the new CBS reference rate. The IPI rates would also be zeroed, with the exception of products that have industrialization in the Manaus Free Trade Zone. The tax will be temporarily maintained in these cases “as an instrument for preserving the favored treatment of the Amazon region”.

In the case of IBS, the transition will be more gradual. Until 2028, the rate will remain at 0.1%. In 2029, ICMS and ISS charges will be reduced by 1/10 per year until 2032. In 2033, current taxes will be completely eliminated.

The longer transition of state and municipal taxes seeks to accommodate the tax benefits already granted by these governments and which are guaranteed maintenance by the National Congress until 2032.

Even with this departure, the federal government will inject BRL 160 billion over eight years to help offset this bill, not counting the FDR (Regional Development Fund), which will have BRL 40 billion annually from 2033.

The states asked for a higher annual amount, of R$ 75 billion, but the rapporteur maintained the amount agreed with the Ministry of Finance. Thus, the sum of the two funds must never exceed R$ 40 billion per year.

The congressman added to the list of goods and services with differentiated tax treatment (which will have a 50% reduction in the IBS and CBS rates) medicines and basic menstrual health care products, in addition to medical devices and accessibility for people with disabilities .

In addition, it began to provide that specific drugs of high relevance may have their rates zeroed by means of a complementary law.

The rapporteur also responded to requests from agribusiness by clarifying the tax regime for cooperatives. Now, the opinion foresees the guarantee that the credits of the inputs acquired by the cooperative members are used in the sale to non-cooperative members.