TAX REFORM IN BRAZIL

The consumption-based taxation system in Brazil has a number of characteristics that make it unattractive to foreign investors.

Often causing even some perplexity in consumer taxation scholars.

This fact finds a response in the formation of Brazilian internal policy, with the refusal of states (provinces) states to accept proposals for reforms that limit to proposing changes to changes in the current situation.

Brazil has just approved its pension reform and now discussions deal with tax reform, facing problems where changes in our Constitution will inevitably be inevitable.

Briefly, there are currently three texts under discussion in Brazil and a text proposed by the House of Representatives, a text proposed by the Federal Senate and another text proposed by the Executive Branch (Ministry of Economy).

We can verify that the texts aim to simplify the collection of taxes often aimed at unifying various taxes.

It turns out that little or almost nothing of the tax burden, apparently it will be reduced, changing only the form of collection that would focus on consumption and no longer on production, also proposing a new model of redistribution of funds collected between the Union , States (Provinces) and Municipalities.

The great challenge in Brazil is to face the differences and particularities of the various States (Provinces) and Municipalities due to their continental size.

We can summarize the projects as follows:

Camera

He studies the Constitutional Amendment Project (PEC) of no.  45/2019  that unifies five taxes in only one, focusing on consumption and would be charged in the destination of the goods.

This "PEC" is authored by Congressman Baleia Rossi, based on studies by former Secretary of the Brazilian Internal Revenue Service,  economist Bernard Appy.

Senate

Debate the "PEC" of No. 110/2019, presented by former Congressman Luiz Carlos Hauly, who promotes the extinction of nine taxes, being replaced by a tax on goods and services (initially treated by the acronym IBS)

We can present the main points of the proposals, except that they are changed almost every week, namely:

Tax reform proposals

PEC 45/2019 (CAMERA)

1. What you propose

Replace five taxes:

·        Tax on industrialized products (IPI)  - federal

·        Contribution to the Social Integration Program (PIS)  - federal

·        Contribution to the financing of social security (Cofins)  – federal Tax on transactions related to   the Movement of Goods and Services Services (ICMS)  - state

·        Tax on services of any nature (ISS)  - municipal

2. How it looks

The five taxes are replaced by the Goods and Services Tax (IBS).

·        The calculation basis will be uniform throughout the country, but federal entities will have autonomy to set the rates, which will be applied to all operations.

·        As each entity will have a tax rate, the final rate of ibs will be the sum of federal, state and municipal rates. For example: If the IBS Union  rate  is 7%, the State rate (Province)  is 11% and the rate danddetermined    Mis 2%, sales made within the Municipality itself will suffer the incidence of IBS at the rate of 20%  (7% + 11% + 2%)

The proposal also provides for the creation of a federal selective tax to focus on specific goods and services whose consumption is intended to discourage, such as cigarettes and alcoholic beverages.

PEC 110/2019 (SENATE)

1. What you propose

Extinguish nine taxes:

·        Tax on industrialized products (IPI)  - federal;

·        Contribution to the Social Integration Program (PIS)  – federal;

·        Contribution to the financing of social security (Cofins)  – federal;

·        Tax on transactions relating to the movement of goods and services (ICMS)  – state;

·        Tax on services of any nature (ISS)  – municipal;

·        Financial Operations Tax (IOF)  - federal;

·        Server Heritage Training Program (Pasep)  - federal;

·        Salary-Education (social contribution to the financing of programs) - federal;

·        Cide-Combustíveis (social contribution to investment of transport infrastructure) - federal.

2. How it looks

They are created:

A state-of-the-income added value tax, called the Property and Services Operations Tax (IBS);

A tax on specific goods and services (Selective Tax), of federal competence, which will focus on items such as oil and derivatives; fuels and lubricants; cigarettes; electricity and telecommunications services.

In addition:

·        Extinguish ewe the Social Contribution on Net Income (CSLL), a tribute paid by every legal entity. This tax will be incorporated by income tax, which now has expanded rates.

·        ITCMD (tribute paid in the transmission of any good for death or donation), which today is the competence of the states and the Federal District, becomes federal competence, but with revenue destined to municipalities.

·        IPVA (property tax for motor vehicles) starts to target aircraft and vessels, but excludes commercial vehicles intended for fishing and public transport of passengers and cargo people with greater contributory capacity.

GOVERNMENT PROPOSAL

1. What you propose

The content has not yet been clearly  disclosed, but it  is reportedly expected to be based onthree pillars:

·        creation of a single tax

·        reformulation of Income Tax

·        implementation of a contribution on payments (CP), along the lines of the defunct Provisional Contribution on Financial Transaction (CPMF).

2. How it looks

The proposal should be based on three pillars:

·        Creation of a tax on goods and services

·        Restructuring of income tax;

·        Institution of a tribute along the lines of the CPMF.