Haddad goes to Congress to deliver tax reform regulation project | Economy

Haddad delivers rules for tax reform

The Minister of Finance, Fernando Haddad, went to Congress this Wednesday (24) to deliver the first bill to regulate the tax reform on consumption. Haddad delivered it personally to Arthur Lira (PP-AL), president of the Chamber. The reform was approved via a proposed amendment to the Constitution (PEC) last year.

This text, from 2023, only brought the general lines of the tax reform. Now, it is necessary to approve the regulations, which will be done via bills.

Among the points to be regulated are the unification of taxes, the products that will make up the basic food basket and the so-called “sin tax”, created to discourage items that are harmful to health and the environment.

The government has not yet released the details of the text of the project that it submitted to the Chamber.

This first tax reform regulatory project has around 300 pages, 500 articles and several annexes. In addition, it also has eight pages dealing only with the repeal of current rules that will be abolished in the future.

An important point to be defined is the value of value added tax (VAT), which will replace a series of taxes that currently exist. According to the tax reform secretary, Bernad Appy, this value should be around 26%.

Haddad said he wants a value lower than 34%, but that this will depend on exceptions to the rule, that is, how many sectors will be able to pay different VATs. Several sectors seek to benefit at this point.

“One thing that is important to emphasize is that we currently have a tax rate of 34%. We want to lower this rate. Now, this will depend on exceptions to the rule and digitalization to reduce evasion and expand the tax base”, added Haddad.

Also according to Haddad, tax reform and its regulations will boost the economy, remove obstacles to the productive sector and make texts cheaper for consumers:

“This means that investments in Brazil will be exempt, exports will be exempt, consumption by popular producers, food, industrialized products consumed by poorer families will have a better price. This means that there will be no cumulative taxes. It means that we will not export taxes, which makes our products more expensive on the international market. There are those who project the impact on GDP to be between 10% and 20%”, he continued.

In addition to this project presented this Wednesday, according to the Treasury, there will be two others:

• one on the transition in revenue distribution (to states and municipalities) and with issues related to administrative litigation;
• one to deal with transfers of resources to regional development funds and compensation for state losses.

The Treasury’s schedule predicts that the regulation will be carried out between 2024 and 2025. With the end of this phase, the transition from current taxes to the Value Added Tax (VAT) model could begin in 2026 — with no charge cumulative.

“”We chose to carry out this construction jointly with the states and municipalities, as we are dealing with two taxes that will have the same legislation. It would not make sense to make a government proposal without considering the states and municipalities. In this process, we seek to listen to the private sector. It would be ideal to put them up for public consultation, but the Congress deadline ended up becoming a limitation”, said Secretary Bernard Appy, from the Ministry of Finance, this Tuesday (23).

According to the proposed amendment to the Constitution (PEC), five taxes will be replaced by two Value Added Taxes (VATs) — with single legislation, one managed by the Union and the other with shared management between states and municipalities:

▶️ Contribution on Goods and Services (CBS): with federal management, it will unify IPI, PIS and Cofins;

▶️ Tax on Goods and Services (IBS): with shared management by states and municipalities, it will unify ICMS (state) and ISS (municipal).

▶️ In addition to the federal CBS and the state and municipal IBS, a selective tax (on products harmful to health) and an IPI will be charged on products produced by the Manaus Free Trade Zone — but outside the region with tax benefits.

The final tax rate, however, will only be known in the coming years — after a testing period has been carried out to “calibrate” the value — necessary to maintain the current tax burden.

The government hopes that, with tax simplification, there will be an increase in productivity and, consequently, a reduction in costs for consumers and producers, stimulating the economy.

• With the implementation of VAT, taxes would become non-cumulative. This means that, throughout the production chain, taxes would be paid only once by all participants in the process.
• Currently, each stage of the chain pays taxes individually, and they accumulate until the final consumer.
• With VAT, companies could deduct, when collecting tax, the amount previously paid in the production chain. They would only collect the tax on the value added to the final product.
• Another change is that the consumption tax (VAT) would be charged at the “destination”, that is, at the place where the products are consumed, and no longer where they are produced. There is a transition period of around 50 years from charging at origin to destination.
• This would help to combat the so-called “fiscal war”, the name given to the dispute between states so that companies can set up shop in their territories. To this end, they intensify the granting of tax benefits.