Two reforms: Income Tax and the new IBS – 02/19/2023 – What tax is this

In 2023, the Lula government intends to approve changes in taxation on consumption, income tax and possibly payroll contributions. It will be the biggest reform since Social Security, four years ago.

The first round of discussions will focus on replacing three federal taxes (IPI, PIS and Cofins) as well as ICMS and ISS with a Value Added Tax, also called Tax on Goods and Services. Explaining what this tax is will be one of the tasks of this blog.

Two proposals are on the table, one from the Chamber and the other from the Senate, with more points of convergence than divergence between them.

The two were presented in 2019, but the attempt to implement a taxation system in Brazil similar to that seen in almost 170 countries has been going on for more than 30 years.

Simplifying, reducing costs, reducing disputes with the Tax Authorities and increasing the burden for the richest are some of the objectives of these proposals. With this, an attempt is made to improve the business environment and an additional boost to economic growth is expected.

There is an important difference, however, in relation to what happened in the discussions on pension reform. Now, the business sector and public managers (governors and mayors) are divided.

Some sectors must pay more. Others, less. Tax benefits will be extinguished. Some federal entities may lose revenue. Others win. A solution is being sought for Simples and Zona Franca companies in Manaus.

Consumers who today have no idea how much they actually pay in taxes when buying goods and services —the number on the invoice in some cases reflects only part of the taxation— should be faced with an explicit rate and at the uncomfortable level estimated at around 25% . It would be the amount to keep the tax burden on consumption at the current level.

For many experts and part of the political world, the reform is ripe for approval, after this long period of debate. Others predict more difficulties.

Discussing the ways to simplify the tax system and showing a little of the day-to-day of this universe will be another task of this space.

Note: To learn more about the differences between the proposals under discussion, I leave here the link to the table prepared by the CCiF (technical note 21 on this page:

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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

3) PL 3887/2020 – proposal from the Ministry of Economy

• Creation of CBS (Contribution on Goods and Services) with merger of PIS and Cofins
• Current rule for exemption from the basic food basket maintained

4) PL 2337/2021 – text approved by the Chamber

• IRPF exemption in the range up to R$ 2,500 and average correction of 13% in the other ranges
• Maximum simplified discount of BRL 10,563.60 (today, the limit is BRL 16,754.34)
• Taxation of dividends, with exemption for Simple and presumed profit
• Cut the IRPJ base rate from 15% to 8%
• CSLL cut by up to 1 percentage point
• End of JCP (Interest on Equity)

Sources: Chamber of Deputies and Federal Senate

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