After the pension reform, the expectation is now for the approval of the tax reform. Two reform proposals aimed at replacing taxation over consumption with a Value Added Tax (VAT) are under debate: PEC 45, in a special committee of the House of Representatives, and PEC 110, in the CCJ (Constitution and Justice Committee) of the Senate, both of this year. Senate President David Alcolumbre said he was in favor of unifying the proposals that are under discussion in the Senate, in the House and that which the government has yet to submit.
Recently, Minister of Economy Paulo Guedes defended the return of a tax along the lines of the old CPMF (Contribuição Provisória sobre Movimentação Financeira – Tax on Financial Transactions) as a substitute for collecting taxes on corporate payroll. Alcolumbre ruled out the return of a tax and stated that the matter is not under discussion. “It is not on the agenda to create a new tax, because the President of the Republic has expressed opposition to the creation of a new tax”, said the senator.
The president of the House, Rodrigo Maia also made public statements that CPMF will not be approved by the congressmen. In addition, Maia said that as soon as the government submits its proposal to the House, it will be promptly sent to the Constitution and Justice Commission for examination of its admissibility. If approved, it will be added to the text already under discussion, of congressman Baleia Rossi. Despite advocating a thorough analysis of the issue, the president of the House gave assurance that he would allow time to approve the reform by the end of the year.
The proposal of the House creates a single tax. Besides to merging federal taxes, such as PIS (Social Integration Program), Cofins (Social Security Funding) and IPI (Tax on Industrialized Products), the text calls for merging the state contribution of ICMS (Movement of Goods and Services Tax) and municipal ISS (Service Tax) to create the tax on goods and services (IBS in Portuguese), which would be managed by the Ministry of Economy.
The government’s proposal, which will be announced soon, provides for the unification of federal taxes only. Furthermore, the proposal also contains the controversial provision of the Financial Transaction Tax (ITF), with a rate of 0.5%. Its operation would be like the old CPMF, overturned in 2007, which taxed at 0.38% any and all financial transactions in the country. In the proposal of the economic team, there should also occur changes in Income Tax, with a cap on deductions and increase in the range of exemption.
According to Bruno Zaroni, a partner at Zaroni Advogados, the reform has been the target of bills, criticism and misunderstandings for many years, but it is undoubtedly essential: “The reform is vital for the viability of coveted governmental plans and the reduction of the Brazilian tax burden (“Brazil cost”), not only to relieve sectors of specific interests – as has been done in recent administrations -, but also to benefit society as a whole through the unification and reduction of taxes over consumption and a proportional increase in income tax, bringing greater balance and legal-tax security to taxpayers and the Tax Authorities themselves”, he says.