Environment has never been so favorable for tax reform, says expert

“​​The political environment for approving tax reform has never been so favorable. For decades governments have been trying to approve tax reform without success, but, for the first time, the most important factors are aligned. First, because reform is a necessity , but (also because) it is a priority agenda of the federal government through Minister Fernando Haddad and, in addition, it is supported both by the President of the Chamber of Deputies, Arthur Lira, and by the President of the Federal Senate, Rodrigo Pacheco”, he evaluates.

Senator Eduardo Gomes (PL-TO) agrees that the spotlight of the National Congress is on tax reform. According to him, this is also explained by the fact that this reform has shared attention with other important changes that have taken place in recent years.

“I think (the reform) is essential and I also think that, in the government of President Jair Bolsonaro, it was possible to vote on the pension reform, a series of other reforms, such as the sanitation law, the gas law, so that we now have in the new government this responsibility is practically isolated”, he says.

Abdo claims that the reform is “extremely important” for economic growth, since the current model of taxation on consumption is complex and hinders business. “We have thousands of tax rules in the country. Each city, each state has its own laws, in addition to the laws of the Union. We have a huge mess of rules, a tax liability being discussed in court in the trillions (of reais). importance of simplifying this system is urgent”, he believes.

Proposal

The complexity of the system continues to grow. A study by the Brazilian Institute of Tributary Planning (IBPT) found that the country creates 829 rules per business day. Since the Constitution, there have been more than 400,000.

To try to solve the problem, deputy Aguinaldo Ribeiro (PP-PB) presented the preliminary text of the Proposed Amendment to the Constitution (PEC) 45/2019. In general terms, the rapporteur proposes the unification of the five taxes on consumption by a dual value added tax (VAT). Union taxes (IPI, PIS and Cofins) would give rise to the Contribution on Goods and Services, the CBS, while the ICMS, under the responsibility of the states, and the ISS, under the responsibility of the municipalities, would form the Tax on Goods and Services, the IBS.

The proposal projects an 8-year transition from the current to the new tax system. Another transition that the substitutive brings is the one in which the incidence of the tax is changed from the origin of the product or service (where there is manufacturing) to the destination (where there is consumption by people). The PEC suggestion is that the change will take 50 years.

The text also creates the Regional Development Fund (FDR), whose objective is to compensate the states and municipalities that, today, reduce taxes to attract investments, which will be unfeasible with the adoption of the principle of taxation at destination. The Union is willing to finance the FDR in up to R$40 billion from 2032, but the states want more.

According to senator Eduardo Gomes, this and other impasses surrounding the text that the rapporteur presented last week can be resolved with the dialogue that should take place in the coming days with governors, mayors and the productive sector. “It is a time to seek convergence on certain themes and separate those that still persist, placing us in this discussion in a very delicate way, because it is a very important subject, but, in any case, it is already a step forward”, he points out.

The president of the Chamber of Deputies, Arthur Lira, intends that the PEC go to the vote in the plenary of the house still in the first week of July, before the parliamentary recess.

Tax reform has different rates for VAT and 8-year transition