Tax reform: what alternative texts do you propose? – 01/04/2023 – Market

While the Chamber of Deputies is discussing a tax reform with the implementation of a new tax on consumption, following the model adopted in more than 170 countries, some entities in the service sector, representatives of mayors and tax experts have defended alternative proposals and the inclusion of other taxes in the debate.

Among the demands are discussing exemption from the payroll and taxation of consumption together. A new contribution on financial transactions, a theme that was resurrected in the Jair Bolsonaro (PL) government, is also desired by some entities. A modernization of the current system, in turn, is seen as a solution by some specialists.

In this first semester, the government wants to simplify and replace the five main taxes on consumption (the federal PIS, Cofins and IPI, the state ICMS and the ISS) by up to three new taxes, with unified legislation and without the possibility of regional tax benefits (with exception of the Manaus Free Trade Zone).

There should also be a change in taxation from the location of the company’s headquarters to the consumer’s municipality, redistributing the collection. Taxation of all goods and services tends to be the same, with some exceptions that are under analysis, such as food, health, education and transport.

As a result, some services may be taxed more than they are today, although the government points out that there will be gains for the sector as a whole in terms of revenue growth.

An alternative proposal that was formally presented in Congress is the so-called Simplifica Já, which is part of PEC 46/2022. The text was filed by Senator Oriovisto Guimarães (Podemos-PR) and signed by 37 senators at the end of last year. The PEC has the support of some service entities and the FNP (National Front of Mayors), which represents the large municipalities.

Simplifica Já provides for the unification of state ICMS and municipal ISS legislation, but does not end these taxes, and leaves states and municipalities free to provide sectoral tax incentives in the fiscal war model. The proposals under analysis in Congress, on the other hand, say that a product must have the same rate throughout the country.

Changes in the federal PIS/Cofins rules and payroll exemption with the taxation of marketplaces and apps are also planned.

PEC 46/2022 is not being analyzed by the working group that deals with the reform in the Chamber. The collegiate works on two other texts (PEC 45 and PEC 110), both under discussion since 2019.

The return of the CPMF

Another sectoral entity, the CNS (National Confederation of Services), proposed two reform alternatives, both focused on payroll exemptions. In both cases, employer contributions of 20% to the INSS, to Incra and to the education salary would be extinguished, in addition to a reduction in the deducted portion of the worker from the range of 8% to 11% to 5% to 8%.

In exchange, the CPMF would be recreated, this time with the name Social Security Contribution on Financial Transactions, and a rate of 0.74% – almost double the 0.38% tax in force in Brazil from 1997 to 2007.

The idea of ​​creating a social security contribution on financial transactions to relieve the payroll was defended by the Ministry of Economy in the Paulo Guedes administration (2019-2022), but the proposal never had support in Congress.

Luigi Nese, president of CNS, admits that the new CPMF is unlikely to be approved. For this reason, he proposes as an alternative to offset payroll tax relief with a higher rate on consumption taxation.

Nese is against the creation of the tax that is being debated in Congress, the IBS (Tax on Goods and Services), which follows the model known as IVA (Value Added Tax), used in most countries in Europe and Latin America. He says that the IBS is obsolete and that the CPMF is a modern tax.

“What you have to put on the table is VAT with payroll exemption. There is no chance of passing without exemption”, says Nese, who still sees little chance of approval of the reform on consumption. “I think the tax reform won’t pass.”

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Alternatives to tax reform

Simplify Now/PEC 46/2022

• Unification of ICMS state legislation and ISS municipal legislation
• Don’t end these taxes
• Allows sectoral tax incentives
• Changes to federal PIS/Cofins rules
• Payroll exemption
• Taxation of marketplaces and apps

CNS Proposal

• End of employer contribution to INSS
• End of contributions from education salary and to Incra
• Reduction in workers’ contribution to Social Security
• New contribution on financial transactions or
• Financing payroll tax relief by taxing consumption more

infraconstitutional reform

• Reduce hours spent on ancillary obligations
• Reduce current tax rates and fines applied
• Prevent the creation of state funds
• Ending Tust and Tusd tariffs on electricity
• Putting an end to the system of tax substitution
• Review the policy for input credits for PIS/Cofins

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Last Thursday (30), Minister Fernando Haddad (Finance) ruled out the return of the CPMF, when talking about measures to increase revenue.

Many specialists point to the CPMF as a non-progressive tax, because it is levied on rich and poor with the same percentage. Progressive taxes, such as IR and IPTU, on the other hand, have an exemption range and higher rates for the richest. In the IBS of the tax reform, this differentiation will be made through the refund of the tax (via cashback) for the low income.

Some tax experts have advocated infraconstitutional reform, focused on simplifying rather than changing the tax system. In an article published on the blog of Sheet What Tax is This, Fernando Facury Scaff, professor at the Faculty of Law of USP, defended this position.

Among the measures to improve the system, he advocates revising the PIS/Cofins input credit policy and systematizing the collection of tax information, reducing the nearly 2,000 hours of work spent filling out ancillary obligations.

“The Tax Constitutional Reform may be ripe for Congress, but the productive sectors and academia do not understand it that way.”

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More advanced proposals in Congress

1) PEC 45 – report by Deputy Aguinaldo Ribeiro

• Replaces five taxes (PIS, Cofins, IPI, ICMS and ISS) with a Tax on Goods and Services and a Selective Tax on cigarettes and alcoholic beverages
• Six-year transition in two phases, one federal and the other with ICMS and ISS
• Replaces the exemption of the basic food basket with the refund of taxes for lower-income families

2) PEC 110 – Senator Roberto Rocha report

• Creation of CBS (Contribution on Goods and Services) with merger of PIS and Cofins
• Creation of the IBS (Tax on Goods and Services), with the merger of ICMS and ISS
• Replaces IPI with a selective tax on items harmful to health and the environment
• Creation of the Regional Development Fund, supplied with IBS resources
• Tax refunds for low-income families