Tax reform: without exceptions created in Congress, VAT could have a value closer to that of developed countries, says CNI

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Calculations also estimated that the single dual tax rate could reach 27.5%, one of the highest in the world. The estimated rate for future federal, state and municipal value-added taxes would be 21.7% without the exceptions (benefits) included by the Chamber and the Senate for certain sectors of society. The calculations are from the National Confederation of Industry (CNI) and LCA Consultores. The survey is based on the text that was approved by the Federal Senate. And that, therefore, considers the exceptions included by both the Chamber and the senators. The study also confirms calculations by the Ministry of Finance that, with exceptions for sectors of society, the standard rate (charged to those without the benefit) will be 27.5% – one of the highest in the world. “As some goods and services are entitled to a reduced rate or a specific regime, which may imply a reduction in taxation, other goods and services are subject to a higher standard rate. Thus, when all the exceptions provided for in the PEC are added together 45/2019 approved by the Senate, there is an increase of 5.8 percentage points in the standard IBS/CBS rate, which goes from 21.7% to 27.5%”, informed the CNI. The so-called exceptions incorporated by the Chamber and the Senate occur through special tax collection regimes, with differentiated taxation; at a reduced rate (60% of the amount charged to other sectors); or via tax relief (zero rate, for example, for investments or exports). At 21.7%, without the benefits, Brazilian rates on future VATs would be closer to the Organization for Economic Co-operation and Development (OECD) average, which is 19%, according to figures from the Tax Foundation, an organization that has been operating for longer 80 years collecting data on taxes around the world. The OECD is made up of more developed countries. Tax reform: Haddad admits that new exceptions raise the standard VAT rate to up to 27.5% Competitiveness This Wednesday (13), the Parliamentary Front for Competitive Brazil (FPBC) and the Competitive Brazil Movement (MBC) reported, through note, who defend the approval of tax reform on consumption to create an environment of security and attract investors to the country despite the number of exceptions approved – which “still worries”. “One of the key pillars supporting economic growth is the creation of a regulatory environment that provides legal security for the productive sector, predictability for investors and that adheres to the reality of a digitalized economy, which invariably involves the need for adjustments in the national tax system”, the entities informed. They added that the current tax system is the second factor with the greatest impact on the Brazil Cost (1.7 trillion reais), representing losses between R＄270 and R＄310 billion annually. “These losses refer to economic inefficiencies, allocative distortions, expenses with tax disputes, loss of investment and obstacles to greater exports, since today there is an export of taxes (called tax residue)”, they explained. FPBC and MBC also assessed that the number of hours spent paying taxes is the main indicator of the complexity of a tax system. “In this regard, Brazil is in last position among the 190 countries analyzed by the Doing Business study, with 1,501 hours per year, a number almost 5 times higher than the Latin American average (317.1 hours/year) and ten times the average of the OECD (158.8 hours/year). Of the 1,501 Brazilian hours, 885 are dedicated only to the payment of indirect taxes”, they concluded. Tax reform The tax reform text has already been approved by the Chamber and also by the Federal Senate. However, as it was changed by the senators, a new analysis will be necessary by the deputies – who are resistant to supporting the new benefits granted by the senators. This week, for example, the tax reform rapporteur in the Chamber, Aguinaldo Ribeiro (PP-PB), defended removing the extended basic basket, created by the Senate, from the text of the proposed amendment to the Constitution (PEC). In general terms, the initial proposal establishes the extinction of five taxes: IPI, PIS and Cofins (federal); ICMS (state); and ISS (municipal). Instead, two Value Added Taxes (VATs) 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, and a CIDE to maintain the competitiveness of the Manaus Free Trade Zone. In the VAT model, taxes are not cumulative throughout the production chain of an item. Example: when the trader buys a shoe from the factory, he only pays tax on the value that was added at the factory. Furthermore, taxes will now be charged at the final destination, where the good or service will be consumed, and no longer at its origin. 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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