Tax Reform: rapporteur says he has the votes to approve – 11/02/2023 – Market

The Tax Reform already has the necessary votes to be approved by the CCJ (Constitution and Justice Commission) and the Senate plenary, says the rapporteur of the proposal in the House, Eduardo Braga (MDB-AM).

The senator, the president of the Senate, Rodrigo Pacheco (PSD-MG), and the president of the CCJ, senator Davi Alcolumbre (União Brasil-AP), together evaluated this scenario reported by him in an interview with Sheet.

“We believe we have the votes to approve, both in the commission and in the plenary”, says Braga, without revealing the vote count. A PEC (proposed amendment to the Constitution) requires a simple majority in the CCJ and the support of at least 49 of the 81 senators to be approved in the House plenary, where it goes through two rounds of voting.

According to him, his opinion covering part of the senators’ demands contributed to creating a favorable climate for the reform, which has been stuck in the Legislature for around 40 years. The work, however, also had a “damage containment” nature to prevent too many exceptions from ending up disfiguring the proposal completely.

The senator also defends the halt to increasing the tax burden as a proportion of GDP (Gross Domestic Product), one of the innovations incorporated in his report. “If the [crescimento do] GDP is zero, friend, you’re going to have to cut spending, because you won’t be able to pull the strings over the taxpayer.”

What was the feedback from senators on the opinion? Is there still space or demands for new flexibility?
The feedback is positive, and we evaluate this by the number of additional amendments to the report, much smaller than those presented in the initial phase. This demonstrates the degree of acceptance of the report.

We will still work hard until the CCJ meeting, on Tuesday (7). The expectation is that we will have significant approval by the CCJ. And the idea is, on the 8th, to deliberate in the plenary in the first round. On the 9th, in the second round.

Is there still a lot of pressure from certain groups?
We will feel this by the number of highlights [pedidos de votação em separado de mudanças ou emendas] presented at the CCJ. Until then, it’s articulation.

Some experts perceived the Senate to be more sensitive to lobbies sectors. Mr. Were you bothered by these pressures?
It is a Tax Reform that had been held back for four decades and that profoundly changes the system. It is natural, therefore, for there to be this accommodation of the production system. Now, we try to be very careful and metric in this matter.

I’ll give you an example: sanitation. The text, as it came from the Chamber, could cause major legal controversy and, at the same time, practically make the Sanitation Framework unfeasible. We did not equate sanitation to the concept that many wanted, of public health. We didn’t give the 60% reduction [da alíquota] because, with the volume of credits, they could have a negative tax burden. We balance: we relieve capital goods and, at the same time, we place sanitation under a differentiated regime.

Another example was in transportation. We maintained the differentiated rate and the option of even a zero rate for the urban, semi-urban and metropolitan public transport system and brought all other modes to the differentiated regime. We save money. And, by introducing the differentiated regime for air transport, which was not included, we did not overdo it [da alíquota reduzida]which could give excessive credit to airlines, but we provided economic-financial balance for the sector.

A kind of damage containment.
Damage containment. We were doing this metric. Third example. We maintained the zero rate in the basic basket to combat hunger and created an extended basket with a differentiated rate [reduzida] and cashback.

The issue of the electricity sector. Instead of establishing a different rate or a different regime, we directly benefit the individual consumer [com cashback obrigatório]. The legal entity will be credited [do imposto pago]so you don’t need a benefit.

Why Mr. opted for Differentiated rate for independent professionals? Did the fact that the president of the Senate got involved and received the OAB influence it?
Because I am an engineer, did I benefit engineers? No.

Who earns below the Simples Nacional ceiling [R$ 4,8 milhões ao ano] is protected. A large architecture company, if it earns, I don’t know, tens of millions of reais a year and has 50 architects, it would pay, in ISS, 5%. Now, we want to charge 25% [com os novos tributos]. Do you know what will happen? She will do tax planning. There will be a bunch of individual companies at the bottom, all within Simples, and a holding company at the top. AND [o governo] will collect less tax.

When making a rate of 70% of standard VAT [para profissionais liberais], everyone will pay more tax. And we did not meet the OAB’s request, which was to have a 45% reduction. It’s the story of not so much, not so little.

Mr. Are you convinced of the need for these exceptions to obtain political support?
The Chamber’s text already came with a series of exceptions. We only became aware of the projected rate because I took the initiative to go to the Ministry of Finance and say: either you present a study, or we don’t start the work in the Senate. That’s when the 27% rate appeared, because until then it was a long shot.

Are the changes enough to be approved in the Senate and then in the Chamber?
I talked to Aguinaldo [Ribeiro, relator na Câmara] and I’ve been talking to leaders in the Senate. I am convinced that if this is not the text, it is very close to it. I do not own the truth and I cannot guarantee that the text is ready and finished because that is not how democracy works.

Mr. spoke about an expressive vote at the CCJ.
I’m optimistic. I had lunch with Rodrigo Pacheco and Davi Alcolumbre [presidente da CCJ], we carried out an assessment. And all three of us are optimistic.

What’s the score?
We have our own number, but we will work until Monday (6) night. We believe we have the votes to approve it, both in the commission and in the plenary. We are optimistic.

Has there been any update to the rate estimated by the Ministry of Finance?
No. This update can only be made when the text is approved in the Senate. Any assessment now is premature.

Now, the Senate introduced something very important, which was the reduction of the tax burden [como proporção do PIB]. What is in the text? From 2012 to 2021 there will be a reference value. In the first years of the implementation of CBS and IBS, an average will be taken. If it is higher than the reference value, the rate will have to be reduced. If the average is lower, then it is a political decision.

This means that, if the model is what they are saying, it will increase the base, there will be economic growth, so there will be a higher GDP, a smaller divisor. So it will make room. It could be investment, it could be public spending, it could be whatever. Now, if the [crescimento do] GDP is zero, friend, you’re going to have to cut spending, because you won’t be able to pull the strings over the taxpayer.

Another innovation was the five-year assessment of differentiated regimes. How will this work, given that, in the history of Brazil, once the subsidy is granted, it is very difficult to take it away?
This is not the history of Brazil, it is the history of the world. It is always easier to grant than to withdraw.

We are establishing this period because every five years you reformulate the Chamber and change one third or two thirds of the Senate in direct voting, which represents the opinion of Brazilian society. This is a democratic maturation of the country.

O Regional Development Fund division criteria has been the target of complaints and criticism. States in the Midwest felt discredited, and experts see distortions in the per capita value.
We achieved, if not resolved, majority support on the FDR issue. Not only because we get a more robust value, [mas também] We created a criterion that is constitutional and very balanced between all regions of the country. Of course there may be an isolated claim here or there, but these are very solid constitutional criteria: the States Participation Fund and the population.

I’ve said this all the time: I just can’t manufacture criteria. We analyzed the criterion inversely proportional to GDP, inversely proportional to per capita family income, inversely proportional to the population by the square root of family income, by the direct ratio of the Bolsa Família proportion versus the number of families in each state… This 70% [pelo FPE] at 30% [pela população] it was the balance point.

Mr. still intend increase the value of the current R$60 billion?
I think I did my duty. It’s not up to me to go beyond what I can do. I don’t know the group of senators, but after I presented the report, the discussion about the size of the fund went like this [faz um movimento de baixa com as mãos]. From 2044 to 2048, will we increase another R$2 billion per year to reach R$70 billion? [Até lá] I’ve already turned to dust…

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Eduardo Braga, 63

An engineer, he is a senator for the state of Amazonas and leader of his party, the MDB, in the Senate. In 2023, he was appointed rapporteur for Tax Reform in the House. He was mayor of Manaus, governor of Amazonas between 2003 and 2010 and minister of Mines and Energy in the second term of Dilma Rousseff (PT).