Tax Reform should take ten years to complete – 07/07/2023 – Market

The text of the Tax Reform approved this Thursday (6) by the Chamber of Deputies provides for the merger of PIS, Cofins and IPI (federal taxes), ICMS (state) and ISS (municipal) into one IVA (Value Added Tax). The transition from the current system to the new one will not be immediate, and should be completed ten years from now.

This new 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 (Tax on Goods and Services).

The implementation of the taxes will begin in 2026, with a test rate of 0.9% for CBS and 0.1% for IBS.

“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.

In 2027, PIS and Cofins will 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 migration of state and municipal taxes to the new IBS will be more gradual and will only end in 2033.

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 final rates for each tax will be detailed later, in a supplementary law, as they will depend on calculations carried out jointly with the Ministry of Finance.

A selective tax will also be created on goods and services whose consumption is considered harmful to health (such as cigarettes and alcoholic beverages) or to the environment.

UNDERSTAND THE TAX REFORM ON CONSUMPTION

extinct tributes

• IPI (federal)

• PIS (federal)

• Cofins (federal)

• ICMS (state)

• ISS (municipal)

tributes created

• CBS (Contribution on Goods and Services), at the federal level

• IBS (the Tax on Goods and Services), of state and municipal competence

• Selective tax (on products harmful to health or the environment)

Rates

There will be a single rate as a general rule (to be defined) and a 60% reduction for the following sectors:

• education services

• health services

• medical devices and accessibility for people with disabilities

• menstrual health drugs and products

• public road, rail and water transport services

• agricultural, fishing, forestry and vegetable extractive products in natura

• agricultural inputs, food intended for human consumption and personal hygiene products

• national artistic, cultural, journalistic and audiovisual productions

Other reductions that may be made by supplementary law:

• Exemption for public transport

• 100% reduction in the rate for medicines and medical devices for people with disabilities, in addition to vegetables, fruits and eggs

• Reduction by 100% of the CBS rate levied on Prouni

• Annual revenue limit of BRL 3.6 million so that individual or legal rural producer may not pay IBS and CBS

Cashback

Funds

• Text creates National Fund for Regional Development, with Union resources for states, to reduce regional and social inequalities

• Text provides for the Sustainability and Economic Diversification Fund of the State of Amazonas, with Union resources and managed by it (to be created and detailed by complementary law)

• Establishes the Compensation Fund for Tax Benefits or Financial-Tax Benefits, intended to offset benefits to companies that are compromised after reform, with annual transfers from the Union to states from 2025 to 2032, starting at R$ 8 billion and reaching a peak of BRL 32 billion per year

Federative Council (which will manage IBS) composed of:

• 27 members, representing each state and the Federal District;

• 27 members, representing municipalities and the Federal District (14 representatives based on the votes of each municipality with equal value for all, and 13 representatives based on the votes of each municipality weighted by the respective populations)