The basic text of the tax reform was approved by the Senate on Thursday (12). The progress of the project, however, does not stop there.
The reform still returns to the Chamber of Deputies, due to changes made to the text by senators, which may still have new changes before being sanctioned by President Luiz Inácio Lula da Silva (PT).
The rapporteur, senator Eduardo Braga (MDB-AM), sought to embrace – partially or fully – around 600 of the changes proposed by legislators. Experts consulted by CNN state that, among them, there are both beneficial and harmful measures for the intentions of the reform.
The average rate of Value Added Tax (VAT) – a modality that will replace a series of state and federal taxes in the coming years – has not yet been defined. But estimates indicate that it should exceed 28% (and could reach more than 29%).
If the estimate actually comes to fruition, this would mean that Brazil would have the , exceeding Hungary’s 27% burden.
How did Brazil get to this point?
The main reason: special regimes that reduce the burden of taxes on some sectors. Therefore, the average needs to rise, as one of the principles is .
Tathiane Piscitelli, coordinator of the Tax Law Center at the São Paulo Law School of Fundação Getulio Vargas (FGV Direito SP), reaffirms that the bill was approved by the Senate and managed to maintain its principles of simplification, neutrality and non-cumulative nature.
However, when looking at the approved exemptions, the expert says she has doubts as to whether the project followed principles of privileging essential sectors and services.
“This list [de isenções] cannot be indiscriminate. I completely agree with the criticisms because the idea is neutrality, simplification. The changes must be convergent with the constitutional values of tax and social justice”, said Piscitelli in an interview with CNN Money.
“The exceptions must follow this, and not the interests of the interest groups, in order to build a more efficient tax system.”
Studies indicate that tax reform has the potential to . By simplifying the country’s tax structure, the project tends to reduce costs and make .
According to the Senate’s Independent Fiscal Institution (IFI), tax litigation in Brazil currently reaches — to .
In the United States, the value is 1% of GDP.
in a ranking of more than 170 countries. According to the international financial institution, .
However, Marcus Pestana, president of the IFI, recalls that, during the hearings he had with the senators, .
Furthermore, Pestana points out that exceptions are not the only ones to blame for the high ICMS.
“The Value Added Tax will be the highest in the world due to our tax and income profile. Our tax matrix is very concentrated on consumption, unlike rich countries where it is on assets and income,” he told CNN.
“To find the tax rate, we will have to learn to swim by swimming. Reality itself will dictate, but, by changing the rules of the game, there is no way to foresee this gap”, he concludes.
The president of the IFI refers to the so-called “compliance gap”. Although the search for a new system seeks improvement, changing the rules can also open new loopholes.
Tax evasion, judicialization and tax avoidance are some of the challenges highlighted by Pestana, the magnitude of which can only be understood with effective reform.
For Piscitelli there is still another negative highlight which, according to an analysis by the Taxation and Gender Research Group at FGV Direito SP, is: the Senate’s decision to remove weapons and ammunition from the Selective Tax (IS), .
but in the end they were removed by pressure from the bullet bench.
“This decision will result in a 70% reduction in the taxation of revolvers, which will increase the burden of the general tax rate on society as a whole. The exclusion of weapons from selection transfers the cost of armed violence to society. It’s time to put pressure on the senators to avoid this setback”, states a note sent by Piscitelli.
Tax reform successes
Piscitelli and Pestana reinforce that the rate could be lower if there were fewer exceptions. But they recognize that, .
“[A reforma tributária] It’s good news for a country that needs good news. It improves the business environment”, emphasizes the president of IFI.
“And even though it was not the ideal reform, given the natural pressures of the democratic system, we left a system that is regressive, unfair – where the poor pay more than the richest –, complex, bureaucratic, expensive and insecure.”
For the professor at FGV Direito SP, some highlights are the reduction in the rate for diapers, cashback for telecommunications services and the exemption for meat.
The tax law specialist recognizes that it would be more efficient to also include animal proteins in the value refund system, but points out that the problem is that the country does not have the budget space to give cashback to everyone who needs it.
“The low-income population should not suffer, following the logic of essentiality, tax justice and that democratic debate depends on access to information and telecommunications. , and in this case it is not the majority of the group”, concludes Piscitelli.
In an interview with WWeconomist and tax lawyer Eduardo Fleury highlights that .
“Before, with fewer exceptions, we had relative price equilibrium, choosing the product based on the real price and preference. Despite the prices being uneven, now we will know what they are, today we don’t know what they are. With this transparency and simplification, everyone will feel the change,” said Fleury.
“Despite all the exceptions, the visualization will be infinitely better. There will be a lower tax administration cost and a substantial improvement in the business environment”, he concludes.
Position of sectors
Sectors of the economy – such as real estate, services and some areas of industry – .
Entities such as the Brazilian Chamber of the Construction Industry (CBIC), the Brazilian Association of Real Estate Developers (Abrainc), the National Confederation of Commerce in Goods, Services and Tourism (CNC), the Brazilian Association of Bars and Restaurants (Abrasel), the Brazilian Association of Soft Drink and Non-Alcoholic Beverage Industries (Abir) and the Federation of Industries of the State of Amazonas (Fieam).
proposes a reduction in the Contribution on Goods and Services (CBS) rate for traders in the Manaus Free Trade Zone (ZFM), in addition to covering the oil refining industry in the Western Amazon with a favored regime.
Fieam argues that “the regulations approved by the Senate do not grant new privileges to the ZFM, they only transpose the existing mechanisms in the ICMS legislation. Nothing beyond that.”
The entity states that the Senate’s decision reaffirms the strategic value of the region.
Furthermore, it reinforces that tax compensation aims to ensure competitiveness in a location with high costs and “unique environmental importance”.
“This model, supported by the Constitution, is vital to ensure that industrial production in the Amazon participates fairly in the national and international market, avoiding the migration of companies to other countries and protecting more than 96% of the Amazon forest”, concludes Fieam in note.
Other side of the coin
On the opposite side, the Federation of Industries of the State of Rio de Janeiro (Firjan), the Federation of Industries of the State of Minas Gerais (Fiemg) and the Federation of Industries of the State of São Paulo (Fiesp) assess the benefits granted to the production of the Manaus Free Trade Zone, and are concerned about what competitiveness would look like between different regions.
In an interview with CNNIgor Rocha, chief economist at Fiesp, states that .
“It definitely hurts. [O texto] further expands the tax benefits of a single region to the detriment of all others in the country”, asks Rocha.
The São Paulo Commercial Association (ACSP) assesses that many of the changed points are harmful, especially to small companies, which may suffer from competitive disadvantages compared to large companies.
“Of the 24 million companies in the country, approximately 9 million are incorporated into Simples Nacional and 14 million are MEIs. If the Tax Reform proposal is approved by the National Congress, many companies of this size will suffer irreversible damage and, consequently, the repercussions will be seen on the economy”, he says in a note.
