Tax Reform: Rapporteur is against benefits for lawyers – 12/12/2023 – Market

The rapporteur of the Tax Reform in the Chamber, deputy Aguinaldo Ribeiro (PP-PB), decided to maintain the benefits for automakers in the North, Northeast and Center-West in the text. However, he will defend the overturn of the exception that allows independent professionals to pay a lower rate than other activities.

The congressman also discusses the feasibility of an alternative to replace the Cide (Contribution on Economic Domain Intervention) charge on goods similar to those produced in the Manaus Free Trade Zone.

The measure was included in the Senate as a way of maintaining the region’s competitive advantages, but it could end up increasing the burden on other activities.

Ribeiro states that he intends to publish a first version of the opinion by the end of this Wednesday afternoon (13). The text is expected to be voted on on Thursday (14) to enable promulgation this year.

He gave an interview to Sheet during a break between meetings with leaders. In these meetings, the rapporteur presented the points of the text one by one so that the benches could negotiate an agreement around the changes.

To prevent the PEC (proposed amendment to the Constitution) from returning to the Senate, the rapporteur only intends to suppress sections already approved.

Although he defends his technical positions, Ribeiro says that the final result of the text will depend on coordination with leaders. “My limit is politics,” he says.

In the case of the benefit to car manufacturers, the rapporteur had already considered the proposal in the first vote in the Chamber, but the article fell by one vote during the consideration of the highlights. The Senate included the incentive again, and Ribeiro says he has already decided to keep it in the opinion.

“[Sem o benefício] What you would have is an automaker with full benefit and an automaker with part of the benefit. So, in fact, we are creating equality between this benefit to avoid interfering with competition”, he states.

Automakers in the South and Southeast are against the extension of incentives for other regions. Therefore, the topic must be highlighted again during the vote in the plenary.

In this scenario, defenders of the benefit will need to cast 308 votes to keep it in the text.

Asked about granting tax benefits to combustion cars amid the global effort to reduce the use of fossil fuels, Ribeiro argues that the instrument will have the possibility of social control.

“So it’s easier to control this. And there is clearly a command there with a bias towards environmental sustainability, as well,” he says.

On the other hand, the rapporteur says that he supports removing the intermediate rate created to benefit independent professionals (such as lawyers and engineers) who have annual revenues exceeding R$4.8 million and are outside Simples Nacional.

For the deputy, the exception introduced in the Senate reduces the so-called progressiveness of the text — that is, the reform would end up, at this point, benefiting the richest.

The text coming from the Senate provides for these professionals to collect a tax equivalent to 70% of the standard rate (i.e., with a 30% discount), which generated criticism among experts.

“I will defend what I believe in, which is a VAT [Imposto sobre Valor Agregado] more modern, and remove these things. [A ideia é] have fewer rates, be able to increase the base, have more progressiveness”, he states.

“We’re talking about people who have a lot of purchasing power and end up paying the same thing that the guy who has less purchasing power pays,” he says.

One of the points of impasse is the establishment of Cide on goods that compete with those produced in the Manaus Free Trade Zone. The excerpt was introduced by senator Eduardo Braga (MDB-AM), rapporteur in the Senate and defender of the Free Zone.

In the proposal originally approved by the Chamber, the forecast was to use the Selective Tax to maintain an additional charge on goods similar to those produced in the Free Zone. The cost was already included in the new VAT rate estimates.

In the form approved by the Senate, however, Cide would function as an additional charge, linked to VAT, making products for which there is also production in the Free Zone more expensive.

Ribeiro said he does not yet have an estimate of this rate, but it would have to be sufficient to finance the existing incentive. Furthermore, the resources would be allocated to the region.

“The Cide is a tax that is outside the reference rate. The Free Zone has between R$20 billion and R$30 billion in benefits. If you are thinking of collecting this with this Cide, you will have to set a rate, which will be incorporated into IBS [Imposto sobre Bens e Serviços, de competência estadual e municipal]. At least that is the understanding of some of our technical staff and the people who took the time to carry out this study”, says Ribeiro.

Furthermore, according to the rapporteur, the sharing of Selective Tax resources was much less concentrated than in the Cide model. This factor has led benches from other states to pressure for changes.

It is not yet known whether it will, in fact, be possible to reach a solution to this impasse. From a technical point of view, the ideal scenario would be to change the text, but this would require a new vote by the Senate.

On the other hand, just the suppression of the Cide section would leave a “vacuum” in relation to the protection of the Free Zone industry — which, from a political point of view, could be a complicating factor for the progress of the reform.

The challenge, according to the rapporteur, is to find a technical solution, seeking a text already approved by the Senate that resolves the impasse. He recognizes, however, that there are still no guarantees that this will be possible. In this scenario, the decision whether or not to maintain Cide will be eminently political.

Another point that is “under consideration”, says Ribeiro, is the period that will serve as a reference for calculating the distribution of IBS revenue between states and municipalities.

The text says that the initial reference will be the average participation of entities in the total revenue pie between 2024 and 2028. There is fear, however, that this will generate a race to increase tax rates in an attempt to guarantee the state a larger share.

The option in this case would be to delete the article that establishes the reference period, leaving the discussion to the regulation phase, by complementary law. No decision has been made yet.

Ribeiro also reiterated his defense of excluding the so-called extended basic basket, maintaining only the so-called National Basic Basket approved by the Chamber of Deputies, a restricted list of items that will have a 100% discount on the new VAT rate.

According to him, the measure is sufficient to mitigate the effects of the new taxation on families’ pockets. The creation of an extended basic basket, with a reduced rate (equivalent to 40% of the standard), would leave the door open for an exaggerated expansion of exceptions, assesses the rapporteur.

“What we want is a basic food basket, right? [Mas] Food, which is what we put there. Today you have a basket of everything,” he says.