Tax reform should be enacted this week

The session of the National Congress aimed at promulgating the Proposed Amendment to the Constitution (PEC) 45/2019, which instituted the tax reform, is scheduled for this Wednesday (20), at 3 pm (Brasília time). The matter was ultimately approved by the Chamber of Deputies on Friday night (15).

“Next week, we will enact these rules that, I am sure, will boost the economy and create conditions for our country to return to the path of consistent growth, with job creation and reduction of social inequality. Awaited for 40 years, the measure simplifies the system and promotes tax justice to charge more from those who earn a lot and less — or nothing — from those who earn little”,

said the government leader in the Senate, Jaques Wagner (PT-BA), on his social networks after approval in the Chamber.

The essence of the PEC is the simplification of taxes and the model in operation in the country. The text provides for the replacement of five taxes (ICMS, ISS, IPI, PIS and Cofins) with three: Tax on Goods and Services (IBS) in states and municipalities; and Contribution on Goods and Services (CBS) and Selective Tax (IS) at the federal level. The proposal also changes rules for other taxes, such as state taxes IPVA and ITCMD and municipal taxes IPTU and Contribution on Public Lighting.

Changes

The Chamber of Deputies removed sections included by the senators, who established a second basic food basket option, the “extended” one. The rejection occurred in the report by deputy Aguinaldo Ribeiro (PP-PB) and was confirmed after highlighting (voting on specific sections).

The extended basic basket provided for a reduced rate of 40% on IBS and CBS on food products. The poorest could still redeem the tax embedded in the price of food through the refund mechanism called cashback. The benefited items would be defined in subsequent legislation and would be foods not included in the main basic food basket, maintained by the deputies. It will be called National Basic Food Basket and will be exempt from the same taxes.

The Chamber of Deputies also removed the obligation to charge a Selective Tax on weapons and ammunition, except for public administration, included by Braga in the Senate. This tax will serve to discourage products and services that are harmful to health and environmental sustainability, and will be regulated by complementary law.

Specific regimes

The deputies maintained Aguinaldo Ribeiro’s change so that air services for public passenger transport, sanitation services and highway concessions were excluded from specific taxation regimes. This type of regime does not aim to reduce taxes on sectors, but to adapt the rules to the particular characteristics of the sector.

The removal of exceptions to the general rules aims to reduce the standard rate of future Value Added Tax (VAT). When the reform was approved for the first time in the Chamber, in July, the Ministry of Finance estimated that the VAT charged on most products would be between 24.45% and 27%. After the Senate’s changes, minister Fernando Haddad calculated that there could be an increase of up to 0.5 percentage points.

Manaus Free Zone

The Chamber’s final text also changed the Senate’s rules on the competitive differential of the Manaus Free Zone (ZFM). The deputies rejected taxation with the Economic Domain Intervention Contribution (Cide) in the rest of Brazil on goods that have industrialization encouraged in the ZFM or in free trade areas. The senators’ idea was that Cide would be established in 2027 and, with that, the IPI would be extinguished.

With the change, Cide will no longer be charged and in 2027 the IPI will have its rates reset to zero only for products that do not have industrialization encouraged in the ZFM. According to Aguinaldo Ribeiro, the change was preceded by an agreement between deputies and senators.

“In view of the strong rejection of the idea of ​​taxing the other units of the federation with a Cide, consensus was reached. In practice, we will have the IPI Zona Franca de Manaus”,

said the rapporteur at the plenary session approving the PEC in the Chamber.

On his social media profile, the Senate rapporteur, Eduardo Braga (MDB-AM), celebrated the permanence of tax incentives for ZFM, even if with rules different from those proposed by him:

“Mission accomplished: Manaus Free Trade Zone is saved! In an agreement reached this Friday (15/12), we guarantee the competitiveness of the main economic platform in Amazonas. More than 500 thousand people depend on ZFM to support their families, our state depends on ZFM for its financing.”

Text maintenance

Deputies presented highlights to vote separately on excerpts from Aguinaldo Ribeiro’s report. They returned to the text the Senate version that raises the salary ceiling for state and municipal auditors to R$41,000, the same remuneration as ministers of the Federal Supreme Court (STF). They also maintained incentives for the automotive sector and battery manufacturers in the North, Northeast and Midwest.

Over the next year, parliamentarians are expected to vote on complementary laws to regulate tax reform. These laws will define fundamental points of the new taxes, tax transition, among other aspects. Braga hopes that two standards will be enough to comply with the rule.

“My expectation is that tax reform can be regulated with just two complementary laws next year. This will be fundamental so that the new consumption tax system can be effectively implemented from 2025 onwards”,

pointed out on his social networks.

The PEC also obliges the government to send, within 90 (ninety) days after the promulgation of the PEC, a bill that reforms income taxation and payroll taxation (exemption). The National Congress approved a law that extends the exemption for another four years, a type of tax incentive aimed at 17 large sectors of the economy. The federal government completely vetoed the text, but parliamentarians overturned the veto on December 14. For senator Laércio Oliveira (PP-SE), it will be an opportunity to reduce taxes.

“Agreement maintained after much articulation to ensure the maintenance of the amendment presented that includes the tax reform text, determining the government to send, within 90 days, a bill reforming the payroll. This way we can have less taxes and more jobs!”, he said on his social networks.

*With information from consultancy

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Basic text of the Tax Reform maintains IPI for competitiveness of the Manaus Free Zone