Changes in taxation
Text returns to the Chamber after adjustments are approved in the Senate, on Wednesday (8); reform impacts everything that is sold, purchased or consumed; know more
Published on November 9, 2023 at 12:07
Unification of taxes
One of the main changes is the extinction of five taxes: Tax on Industrialized Products (IPI), Social Integration Program (PIS) and Contribution for the Financing of Social Security (Cofins) — all administered by the Union —, the Tax on Circulation of Goods and Services (ICMS, state) and Service Tax (ISS, municipal).
Impact on prices
There will be a standard rate, a reduced rate (by 60%, which will cover public transport, health services, education services, agricultural products, basic food baskets, artistic and cultural activities and part of medicines, for example) and a zero rate (for segments specific).
Percentages and other details will be discussed in a complementary law. However, with the end of the differentiation between taxes on goods and services, the existence of few rates and exceptions and exemptions, there will be price changes.
The reform foresees, for example, the creation of a National Basic Food Basket, whose items — such as rice, beans, among other products — will be tax-free, benefiting families as a whole. What will be included in the basket will be defined by complementary law.
To compensate the poorest for the tax burden existing in the country, there will also be a reimbursement system, in which there will be a refund of part of the CBS (federal contributions) and the new Tax on Goods and Services (IBS) — which will take the place of the ICMS and of the ISS.
The general idea, however, is that consumers with lower purchasing power are reimbursed for taxes on purchases of products such as meat and personal hygiene and cleaning items, so that the impact of the tax burden on consumption is minimized. This “discount” must be 60%.
The low-income population should also be entitled to the refund of part of the tax charged on their electricity and cooking gas bills, according to the rapporteur’s proposal in the Senate.
On the other hand, some products, such as alcoholic beverages and cigarettes, will have a higher tax burden, as they will be part of the “sin tax” list. Through the Selective Tax, which will replace the IPI, there will be a disincentive to the production, sale or import of goods and services that are harmful to health or the environment.
The senators also approved the mandatory Selective Tax (IS) on weapons and ammunition (except for public administration).
Sector that benefits most
Industry, specifically, should be one of the most benefited sectors. In July, after approval of the text in the Chamber, the president of the Federation of Industries of Espírito Santo (Findes), Cris Samorini, pointed out that, over the years, companies in the area have been penalized due to the complexity of taxes levied on what is produced and that there was a great need for simplification.
“We have a great need for simplification, transparency and equality. Today, the industry is already losing competitiveness”, he declared at the time.
The last stage of the reform, which focuses, above all, on the consumption of goods and services, will be the change in the place where taxes are collected. Currently, taxes are charged where the goods are manufactured (origin). After the transition, payment will take place at the destination, that is, where they are consumed.
As it is a small state, with a smaller number of consumers, but with many companies that produce locally and sell to other locations, Espírito Santo tends to be harmed by the change.
The PEC, however, establishes a period of fifty years for all changes to come into force, so that the State and municipalities gain time to organize their accounts.
- The implementation of the new taxes will begin in 2026, with a test rate of 0.9% for CBS and 0.1% for IBS. In 2027, PIS and Cofins will be completely abolished and replaced by the new CBS reference rate. IPI rates will also be zeroed, with the exception of products that are industrialized in the Manaus Free Zone.
- The migration of state and municipal taxes to the new IBS will be slower and will only end in 2033. Until 2028, the rate will remain at 0.1%. In 2029, ICMS and ISS charges will be reduced by 1/10 per year until 2032. In 2033, current taxes will be completely abolished.
- The definitive rates for each tax will be detailed later, in a complementary law.
- A selective tax will also be created on goods and services whose consumption is considered harmful to health or the environment.
- The last change will begin in 2029 and end only in 2078, when there will be a complete change in the place where taxes are collected, which will no longer be the place of production (origin) and will become the place of consumption (destination).
A technical note prepared by the Institute of Applied Economic Research (Ipea), entitled Redistributive impacts of the tax reform, points out that, with the changes brought about by the reform, in a scenario in which the Brazilian Gross Domestic Product (GDP) grows 1.5% per year, year, for example, Espírito Santo’s revenues could, in reality, increase 0.9%, considering the transition.
The text proposed by the PEC rapporteur in the Senate, Eduardo Braga (MDB-AM), provides for a “reference lock” for the collection of consumption taxes.
This limit, which cannot be exceeded, will be the tax burden as a proportion of GDP (Gross Domestic Product), on average for the period from 2012 to 2021 — which would be equivalent to 12.5% of GDP, according to the Extraordinary Secretariat of Tax Reform of the Ministry of Finance.
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