Brazil will have one of the best tax systems in the world, says creator of PEC 110

According to the economist, by unifying the collection of five taxes on consumption (IPI, PIS, Cofins, ICMS and ISS) into one tax, the IVA (Value Added Tax), the country will be able to resolve one of the major bottlenecks for economic growth .

“The tax reform in the Chamber converges to a great national understanding with the creation of the single national dual VAT, that is, a law only to administer the state-municipal VAT and the federal VAT. The Dual VAT has a very important feature within this economic structure , social, which will result from the new model of the Brazilian tax system”, he evaluates.

Two proposals on tax reform are at a more advanced stage in the National Congress. One of them is PEC 110, which proposes the unification of five taxes on consumption. On the Union side:

• IPI (Tax on Industrialized Products);
• PIS (Social Integration Program);
• Cofins (Contribution for the Financing of Social Security).

On the side of states and municipalities:

• ICMS (Tax on Circulation of Goods and Provision of Services);
• ISS (Tax on Services).

They would give rise to VAT. In the Chamber, PEC 45 also suggests simplification. The main difference between PEC 110 and 45 is the possibility for states and municipalities to have their own VAT. In this way, Union taxes would give rise to federal VAT, also called Contribution on Goods and Services (CBS), and ICMS and ISS to VAT for subnational entities, known as Tax on Goods and Services (IBS). Therefore, Dual VAT.

Dual IVA finds support among mayors and part of the governors because it gives more autonomy to the collection of these entities. Hauly defends that the taxes are unified, but that there is a separation between the Union tax and the state and municipal tax.

“The distinction is necessary because the collection of PIS and Cofins is a collection destined exclusively to finance social security, health and social assistance. So, having your own contribution guarantees and strengthens the social security and social security system in Brazil. And the states and municipalities, which today own the ICMS and ISS, will keep the Tax on Goods and Services, encompassing the entire ICMS tax base and the entire ISS tax base.”

Focus

To Brasil 61, congressman Reginaldo Lopes (PT-MG), coordinator of the Working Group on Tax Reform, said last Tuesday (27) that the Dual IVA should prevail over the single IVA in the report to be delivered by the collegiate this Tuesday (6).

Roberto Piscitelli, a professor at the Department of Accounting and Actuarial Sciences at the University of Brasilia (UnB), says that historically there has been a distrust of states and municipalities with the control of collection by the federal government and the allocation of resources that fall to the federal entities.

According to him, it is important that those responsible for the PEC do not lose sight of the fact that, more important than giving in to pressure from subnational entities for a Dual VAT, is ensuring that the reform fulfills its main objective: simplifying the current system, seen as one of the most complex and expensive in the world.

“If you start dividing this pie and creating separate collection and control mechanisms, I don’t know if we will achieve the most announced objective, most evident in discussions about tax reform. This tax reform is specifically a pending reform to simplify the process of calculation and collection of taxes levied on production and circulation”.

“Evidently, if I want to reduce the requirements for complying with legislation, including ancillary obligations, I should do or should imagine something more similar to Simples, in which there is a single payment for several different taxes and then the distribution,” he points out.

Timeline

The final report of the Tax Reform WG will be released next Tuesday (6). Next, the group plans to meet with party leaders for two weeks to discuss the text. The expectation is that federal deputy Aguinaldo Ribeiro (PP-PB), rapporteur for the reform in the Chamber of Deputies, will present the substitute for the proposal around June 20.

Tax Reform: GT coordinator in the Chamber says Dual IVA should prevail in the final report