Tax reform still has resistance fronts; see – 06/23/2023 – Market

The transition of the states, the incentives of the Manaus Free Trade Zone and the fear of an increase in the burden on the services sector are some of the fronts of resistance that the rapporteur for the tax reform, deputy Aguinaldo Ribeiro (PP-PB), will need to face in the coming years. days to achieve the final goal of voting on the text in the plenary of the Chamber until July 7th.

Since the release of the preliminary text of the PEC (proposed Amendment to the Constitution), on Thursday night (22), what parliamentarians already call behind the scenes “the wailing wall” began: different groups and sectors asking for adjustments in devices to feel more contemplated by the proposal.

The president of the Chamber, Arthur Lira (PP-AL), committed himself to the dissemination of the substitute on the grounds that it was necessary to give precisely the “time for criticism”. He acknowledged that the text is preliminary and still needs to undergo changes.

In the working group that conducted the PEC negotiations, there is an assessment that the conversations will continue, but it is also the moment to start counting votes to map the chances of approval and to know which changes add support to the proposal.

This Friday (23), the day following the announcement of the substitute, some segments have already taken a firm position on the content of the reform, while others have chosen to maintain a cautious stance until analyzing the 29-page legal text.

The FPA (Frente Parlamentar da Agropecuária), one of the most influential groups in the National Congress, is still evaluating the text. The agro sector had been raising some points of resistance to the reform, but received nods, such as the possibility of rural producers with annual revenue of up to R$ 2 million not paying the new IVA (Value Added Tax).

“We are dedicating today [sexta-feira] to analyze the text, to measure the repercussions. We are going to have a more cohesive evaluation next Monday (26th)”, said the vice-president of the FPA in the Chamber, Arnaldo Jardim (Cidadania-SP).

Deputy Sidney Leite (PSD-AM), who served on the tax reform working group, said that the disclosure of the text sends a sign of concrete progress of the proposal. “Sectors will appear that until now were not motivated [a pedir ajustes]”, he said.

The deputy himself pleads for some improvements in the text, related to the Manaus Free Trade Zone —a sensitive topic for his voter base. “We still need to fine-tune and improve the text. The Free Zone has a basket of incentives, reducing it to a single tax is not so simple”, he said.

According to him, ensuring that companies in the region do not pay the new VAT and, even so, generate tax credits for companies that purchase their goods and services “is not enough”. Some sectors, such as motorcycles, would need “a plus” to ensure competitiveness, said the deputy.

The additional incentive defended by Leite is to maintain a small portion of the IPI (Tax on Industrialized Products) —a tax that the reform intends to extinguish—, as this way the Free Zone products would maintain their competitiveness. “Our challenge is to generate jobs, and we need to meet this need,” he said.

States also want wording tweaks. One of the points already expressed by governors is the request for an FDR (Regional Development Fund) of R$ 75 billion per year, greater than the R$ 40 billion proposed by the Ministry of Finance and which are included in the text by Aguinaldo Ribeiro. Resources will be used to grant regional incentives, since the unified rate of the new tax curbs the so-called tax war between states to attract companies to their territories.

The president of Comsefaz (National Committee of State Secretaries of Finance), Carlos Eduardo Xavier, said that the states also want to include the criteria for distributing this fund in the PEC —one of the targets of great controversy among governors. Members of the South and Southeast regions want criteria that give them a bigger slice of the pie.

The current version of the text leaves the definition to a complementary law, to be voted on in the future. “It’s a controversial issue, but we need to face it now. Senators and deputies have the political maturity to find a viable solution,” said Xavier.

The transition to the new VAT is also seen as a necessary adjustment point. In the text, the ICMS rates will begin to fall in 2029, with the definitive extinction of the state tax in 2033. The annual cut will be equivalent to 20% of the current rate.

“We defend a redistribution of percentages, with a test rate in 2029 and definitive migration in 2033”, said the president of Comsefaz.

Another target of caveats is the federative transition, as the period in which there will be redistribution of collection between states and municipalities is called to avoid sudden drops in revenues in producing locations, which today earn with the collection at source. In the new system, the tax will be paid at the destination, that is, where the good or service is consumed.

The PEC provides for a 50-year transition, but the finance secretaries defend a shorter interval, of 45 years, subdivided into two periods.

In the first, for 26 years, the criterion for distributing funds raised with the IBS (Tax on Goods and Services) would follow the initial participation of states and municipalities in ICMS or ISS, decreasing year by year.

In the second, for 19 years, 95% of the resources would be distributed according to the place of consumption (destination), and another 5% would finance the so-called “insurance” against revenue losses. Today, in PEC, insurance is equivalent to 3% of IBS revenues.

“Producing states, with surplus interstate trade balance and exporters lose with the reform, so they need time so that there is no harm to the population. What is unacceptable for these states is that the transition is very short. Less than 45 years is reckless”, said the Secretary of Finance of Mato Grosso, Rogério Gallo.

The entities themselves have acted to combat pressure from states such as São Paulo and Pará, which are against the IBS centralized collection model. According to Xavier, 18 states support this format, seen as “the most rational way to manage” the new tax, which unifies the current ICMS and ISS.

The opposite wing defends the maintenance of decentralized collection, that is, each state maintains its own tax collection structure. Behind the scenes, the position of resistance is attributed to a lobby for the careers of state tax auditors.

“Comsefaz’s position is the model that makes the reform viable. And the opposing states presented models, but were unable to convince the majority that these models are viable”, said Xavier.

In addition to the adjustments, some groups complain about the short time between the release of the text and the scheduled date for the vote (week of July 3rd to 7th).

“It is too little time to discuss such a serious subject. There is still an important gap, which are the complementary laws that will regulate this PEC”, said the president of Abrasf (Brazilian Association of Capital Finance Secretariats), Rodrigo Fantinel. The entity is against the proposal for defending the maintenance of the ISS.

The vice-president of the CACB (Confederation of Commercial and Business Associations of Brazil), Anderson Trautman Cardoso, who also chairs the entity’s legal committee, said that there is great concern in the sector with the risk of an increase in the tax burden.

“We do not have confirmation that the negative impact will not outweigh this possible benefit,” he said. He pointed out that the threat of lifting loads could affect sectors such as technology, which employ skilled labor in the country.

The sector also claims a clearer parameter in the implementation of tax credits generated by companies that are in the Simples Nacional, a simplified regime for collecting taxes for micro and small companies.

The PEC allows Simples companies to start generating tax credits to be used by their customers to deduct taxes payable, which in theory increases the attractiveness of the goods and services of these companies.

The fear, according to Cardoso, is that the credits generated are smaller than those provided by companies outside of Simples, which collect the tax individually on each operation. “The solution is full credit, equivalent to an output of merchandise in the general system. A marketing differential cannot be generated that makes Simples unfeasible”, he criticized.