Tax reform: TCU recommends reviewing, in 2034, exceptions for sectors with lower taxes

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President of the TCU, Bruno Dantas, delivered suggestions to the tax rapporteur in the Senate, Eduardo Braga. Senator says he received 250 amendments and will begin analyzing them this Thursday. President of the TCU, Bruno Dantas, delivers a study on tax reform to senator Eduardo Braga (MDB-AM) Alexandro Martello a list of recommendations and suggestions about the text – which, if it becomes law, will change the way taxes are collected in the country. Among the suggestions is the inclusion of a provision so that the list of exceptions to the general rate – that is, the sectors that may pay less taxes – can be reviewed in 2034. Until then, between 2026 and 2033, annual assessments of cost-benefit of these exceptions, so that the Legislature can evaluate, at the end of this period, whether or not it is worth maintaining them. This could be done, according to the TCU, through a legislative decree or other normative instrument. The recommendation was delivered by the president of the TCU, minister Bruno Dantas. Rapporteur, Eduardo Braga stated that he intends to present his report by October 20th. “We are now entering the phase, starting today, of preparing the report. More than 250 amendments were presented to the text from the Chamber,” said the senator. According to Minister Bruno Dantas, the TCU carried out the necessary simulations, brought conclusions about the proposal approved by the Chamber of Deputies and concluded that there is “room to improve the proposal”. “In this report, we limited ourselves to presenting the conclusions that were requested of us, but we do not think that our contribution ends here”, stated Bruno Dantas, making the court available for new collaborations in the future. Senate discusses tax format with governors TCU study According to the Secretary of External Control of the TCU’s Secretariat for External Control of Public Accounts, Tiago Dutra, one of the authors of the study, the Ministry of Finance’s conclusion that the exceptions approved by the Chamber of Deputies in tax reform must raise the future Value Added Tax (VAT) to up to 27% are correct. “The studies are consensual in the sense that these exceptions are not effective for good financing of public policies, despite being observed in most countries as a political solution to make some of these tax reforms that have been carried out viable,” he stated. Therefore, according to him, the court’s proposal is that they be reviewed in 2034. These exceptions are divided into three groups, according to the text currently being processed: reduced charge, equivalent to 40% of the so-called “standard rate” that will apply to other sectors ; zero rate, on items such as those in the basic food basket, for example; or specific regimes for sectors such as finance, real estate and fuel. According to a Treasury estimate, confirmed by the TCU, the impact of all the favored treatments present in the reform text could reach around 5 percentage points. In other words, without them, the general rate (charged to other sectors), estimated at up to 27%, could fall to 22%. See the exceptions in the tax reform: urban, semi-urban or metropolitan public transport services medicines and medical devices and health services education services agricultural, fishing, forestry and plant extractive products in natura agricultural inputs, food intended for human consumption and food products personal hygiene and national artistic and cultural activities journalistic, audiovisual and sports productions: medical and accessibility devices for people with disabilities goods and services related to national security and sovereignty, information security and cyber security and medicines and basic menstrual health care products Tax Reform was approved in the Chamber with ‘too many exceptions’, says Míriam Leitão Rapporteur wants ‘lock’ on the tax burden The rapporteur of the tax reform, Senator Eduardo Braga, defended that it be fixed in the Constitution, through its inclusion in the text that will be evaluated by the senators, a brake on the tax burden on consumption, that is, a maximum level that could not be exceeded. “We are exactly together with the Federal Court of Auditors, together with the Ministry of Finance, evaluating the size of this blockage and how this wording should be prepared so that we have legal certainty and transparency in what we are going to do to provide absolute peace of mind to the taxpayer and the Brazilian productive sector. This is an issue that the Senate of the Republic views with great concern to guarantee the neutrality of the tax reform”, declared Braga, to journalists. Tax reform In general terms, the initial proposal establishes the simplification of five taxes: IPI, PIS and Cofins (federal); ICMS (state); and ISS (municipal). Instead, two Value Added Taxes (IVAs) would be created — one managed by the Union (CBS), and the other with shared management between states and municipalities (IBS), in addition to a selective tax, on products harmful to health, such as cigarettes and alcoholic beverages. With the implementation of VAT in Brazil, taxes would become non-cumulative. This means that, throughout the production chain, taxes would be paid only once by all participants in the process. Currently, each stage of the chain pays taxes individually, and they accumulate until the final consumer. Another change is that the consumption tax (VAT) would be charged at the “destination”, that is, at the place where the products are consumed, and no longer where they are produced. This would help to combat the so-called “fiscal war”, the name given to the dispute between states so that companies can set up shop in their territories.

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