Five points to understand how tax reform impacts the lives of companies
Publication date: July 19, 2024, 6:16 PM, Last updated: July 19, 2024, 8:08 PM
The complementary bill that details how the new tax system will work still needs to pass through the Senate before being definitively approved. However, with the green light given by the Chamber, the productive sector has gained more explanations about the rules that will impact the day-to-day operations of companies.
Thinking about it, the Brazil 61 prepared a report with five points for you to understand the impact of the reform on everyday business.
1. Simplification
The main objective of tax reform is to simplify the collection of taxes from taxpayers. The current model is considered one of the most complex in the world, because the Union, the 26 states, the Federal District and the 5,568 municipalities can create their own laws to regulate the taxes under their jurisdiction.
The main federal taxes on the consumption of goods and services are PIS, Cofins and IPI. They will be replaced by the Contribution on Goods and Services (CBS), which will be administered by the Federal Revenue Service. The ICMS, a state tax, and the ISS, a municipal tax, will be phased out in favor of the Tax on Goods and Services (IBS), which will be administered by the IBS Management Committee — formed by representatives of subnational entities.
The CBS and the IBS make up the so-called Value Added Tax (VAT) — a taxation model adopted in more than 170 countries. In the case of Brazil, the VAT will be dual, precisely because it is divided into a federal tax and a state/municipal tax.
In addition to the CBS and the IBS, the new tax regime establishes the Selective Tax (IS), the objective of which is to discourage the consumption of products and activities considered harmful to health and the environment. The parliamentarians chose to maintain the IPI as a way of ensuring the competitiveness of the Manaus Free Trade Zone. The tax will be levied on industrialized products manufactured outside the region. A computer manufactured in São Paulo, for example, will be subject to IPI. The same computer manufactured in the Free Trade Zone will not.
In the final design, five taxes will be replaced by four taxes. Although the amount is lower than desired, the simplification is guaranteed from a legal perspective. This is what Márcio Schuch, member of the Tax Reform Study Committee of the Federal Accounting Council (CFC), explains.
“Separating into two VATs is not such a big setback. I continue to believe that this rule simplifies things, because, in a very objective way, you eliminate 27 ICMS regulations and more than 8,000 ISS regulations and transform everything into a single legislation. In terms of legislation and operationalization, compared to what it is today, it is simpler”, he evaluates.
2. Crediting
The new system aims to put an end to cumulative taxes, which are characterized by the incidence of one tax upon another. To achieve this, the text provides for the broad crediting of CBS and IBS. This means that a company will be able to deduct from the taxes it has to pay to the tax authorities the taxes paid by its suppliers. Ultimately, the actual tax burden falls on the consumer.
The right to tax credit exists in the current model, but companies are not always able to appropriate the positive balances they have with the government and it is common for tax authorities to take a long time to return the amount paid in taxes.
According to the PLP approved by the Chamber, the Federal Revenue Service and the IBS Management Committee will have up to 30 days to assess reimbursement requests from taxpayers who are included in compliance programs developed by these same agencies. In other cases, the deadline for analyzing the refund may last 60 or even 180 days. After the analysis, the Revenue Service and the committee will have up to 15 days to reimburse the company.
The text establishes that, if the Federal Revenue Service or the Management Committee do not return the credit balance within the correct period, the credit due to the taxpayer will have to be adjusted daily by the Selic rate. The update will be valid from the first day of the start of the period for reviewing the request until the day before the refund.
According to the production sector, the deadlines should be even shorter, as delays in reimbursement can compromise companies’ cash flow. The National Confederation of Industry (CNI), for example, argues that returning creditors’ balances within 30 days should be the general rule and not the exception.
According to Schuch, although the bill has detailed some points regarding crediting, such as repayment deadlines, there are points that need further explanation, such as the operationalization and performance of the IBS Management Committee in this regard.
“The bill brought some clarifications, but there is still some explaining to do. In any case, a very important point is: when we talk about unifying legislation, we are also talking about the concepts of what gives credit and what does not give credit in a clearer way. This is a big problem today, because we talk about one way of calculating ICMS, and another way of calculating PIS/Cofins.”
3. Compensation of ICMS tax incentives
One of the points that most concerns the productive sector is the guarantee of receiving the ICMS tax benefits that were granted until 2032. These incentives granted by the states are common in the current model and aim to attract the installation of factories.
As ICMS rates will gradually fall from 2029, the benefits will also decrease. This is why the reform creates the Tax Benefits Compensation Fund, whose objective is to financially compensate, between January 1, 2029 and December 31, 2032, individuals and legal entities that benefited from ICMS exemptions, reductions or other incentives.
For Márcio Schuch, the compensation of tax incentives is directly related to the legal security that the country must provide to the productive sector. “Investments were made based on existing benefits. Right or wrong, it is a fact that there are many industries that are established and counting on these benefits to be competitive, and the compensation fund will make this transition. It will collect amounts and pass them directly to companies.”
According to the expert, the role of the IBS Management Committee in this process should be a cause for concern. “There is a point of great concern that additional rules and requirements may be created that the states have not yet included in these tax benefits and that, although compensation is provided for, control may be stricter,” he ponders.
The fund will be supplied by the Union starting next year, according to the schedule below.
- R$ 8 billion in 2025
- R$ 16 billion in 2026
- R$ 24 billion in 2027
- R$ 32 billion in 2028
- R$ 32 billion in 2029
- R$ 24 billion in 2030
- R$ 16 billion in 2031
- R$ 8 billion in 2032
4. Differentiated regimes
Companies from various sectors have benefited from the reduction in tax rates under the new system. Services in the education, health, and culture sectors, as well as medical devices, medicines, agricultural products and inputs, among others, will receive a 60% tax discount. This means that, if the Ministry of Finance’s estimate of a 26.5% VAT rate is confirmed, those included in the differentiated regime will be able to sell these services and products at a rate of 10.6%.
Furthermore, services provided by professionals such as lawyers, architects, accountants, engineers, museologists, among others, will have a 30% discount on VAT, that is, they will pay 18.55% tax, if the reference rate is 26.5%.
Accounting expert Paulo Henrique Pêgas, a professor at Ibmec-RJ, says he is against the high number of sectors that benefited from tax reductions. However, he believes that the impacts caused by these exceptions will be mitigated by the new rule provided for in the PLP, which set a ceiling of 26.5% for the maximum rate of future taxes.
“You will reduce the reduction. It is not redundancy. Today there is a 60% reduction. It is written that you will have to reduce this benefit. Either reduce it linearly, everyone the same, or at the government’s discretion (some specific sector). It is the best thing they could do in the reform, because it limited the upper part. I will no longer let you pass the bill to society. If you want to give an incentive, a reduced rate for a segment that you understand justifies it, you have to take it away from those who already have the benefit.”
5. Transition
The transition period between the current and future regimes promises to be the most turbulent for companies, as they will have to deal with the current taxes and those that will be implemented over the next seven years. According to Pêgas, the confusion will not be in vain, as the new system will be simpler to understand.
“At first, companies will not be able to reduce their compliance costs. They will start to see simplification, but it will still be a complex process due to the requirement for two regimes. However, the outlook is that from 2030 onwards, when ICMS is phased out, the model will start to become much simpler, and the old model, which is more complicated, is already retreating. That is the outlook.”
According to the text, the CBS will come into effect in 2026, initially with a rate of 0.9%. From 2027 onwards, it will fully replace PIS and Cofins, which will be extinguished. In the same year, IPI will be phased out, leaving only IPI Zona Franca. The Selective Tax (IS) will be introduced.
The IBS also comes into effect in 2026, initially with a test rate of 0.1%, a scenario that remains in place in 2027 and 2028. Between 2029 and 2032, the rates of the Tax on Circulation of Goods and Services (ICMS) — state — and the Tax on Services (ISS) — municipal — will gradually fall. In the same period, the IBS rate will gradually increase.
From 2033 onwards, CBS, IBS and IS will be the only taxes on the consumption of products and services.
Tax reform guarantees suspension of CBS and IBS taxes on capital goods
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By Brasil 61
