Five points to understand tax reform and how it affects your life

It is worth remembering that the main objective of the reform is to simplify taxation on the consumption of goods and services. Therefore, the text replaces the federal taxes PIS, Cofins and IPI with a Contribution on Goods and Services (CBS). The state ICMS and the municipal ISS are no longer in use, in favor of the Tax on Goods and Services (CBS). The sum of the CBS and the IBS results in the much-talked-about Value Added Tax (VAT) — a model adopted in more than 170 countries.

1. Tax rate

One of the main questions Brazilians have about tax reform is how much tax people will pay when purchasing a product or service. According to the PLP, the reference VAT rate (or percentage) cannot exceed 26.5%. This is the level estimated by the Ministry of Finance to preserve the revenue of the Union, states and municipalities. This means that if a product costs R$1,265, R$1,000 is the value of the merchandise and R$265 — 26.5% — is the value of taxes.

Tax specialist Leandro Alves, a lawyer from the Bento Muniz law firm, explains that the reform proposes neutrality in terms of revenue collection. This means that, although the new rules may increase the burden on some activities and reduce it on others, the weight of the new taxes on taxpayers, in general, should be the same as that observed in recent years.

“It’s the same math all over the world. Taxation has to be the same size as the State. If you have a large, very welfare-based State, taxation needs to be increased. Being very pragmatic: the math has to add up,” he says.

In addition to the size of the public sector, another factor that contributes to Brazil’s VAT being among the highest in the world is the number of sectors that have received differentiated treatment under the new system, that is, that, in practice, will pay less tax than others.

“The more exceptions the system has, someone will have to pay (the difference). There is an expectation of revenue X. If a portion of taxpayers is paying less, those remaining will have to compensate by paying more, to maintain the same volume of revenue. This can be fixed by reducing benefits and differentiated systems”, he points out.

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2. Cesta Básica

According to the text approved by the Chamber of Deputies, 19 types of products will be part of the National Basic Food Basket. These items will be exempt from CBS and IBS, which means that consumers will not be taxed when purchasing any of them.

Check out the list below

• Rice
• Leite
• Butter
• Margarine
• Bean
• Roots and tubers
• Coconut
• Café
• Soy oil
• Cassava flour
• Cornflour
• Wheat flour
• Sugar
• Pasta
• Bread
• Carnes
• Fish
• Cheeses
• Sal

Member of the working group that analyzed the project, federal deputy Luiz Gastão (PSD-CE) comments that he does not believe that this inclusion will increase the general tax percentage.

“Congress decided that, for the basic food basket, it is important to have protein to provide food security for the entire population. Not only for the poorest class, but when you zero this index, you also zero it for the lower middle class and give everyone access to protein consumption. We believe that this estimated percentage of 26.5% will not be increased because of this”, he assesses.

Since the PLP still needs to be approved by the Senate, the list may change. Items may be added or removed from the tax-exempt basket, which would mean the text would have to return to the Chamber of Deputies.

3. Cashback

Personalized tax refunds — cashback — are one of the main new features of the new system. The mechanism is aimed at low-income consumers. According to the rules approved by federal deputies, people registered in the Single Registry (CadÚnico) who have a monthly per capita family income of up to half the minimum wage — which is currently equal to R$706 — will be entitled to a full or partial tax refund.

Therefore, the total income of a family with two people cannot exceed R$1,412 for them to be entitled to cashback. “It won’t be for everyone. There is a cut-off for income. There is a general impression, from those who don’t follow the subject, that everyone will get a return on what they paid in CBS and IBS, but that’s not quite the case. It’s only for low-income families”, highlights Leandro Alves.

The text determines the return of 100% of the CBS and 20% of the IBS to low-income consumers on their gas cylinder, water, sewage, electricity and natural gas bills. For other goods and services, the cashback will be equivalent to 20% of the CBS and IBS.

The expert believes that the creation of the mechanism is positive in the sense of bringing more tax justice. “The idea of ​​cashback comes to attack the regressiveness of the system, because the gas cylinder, for example, has the same price and the same tax for everyone, but it has one repercussion for a person who earns a minimum wage and another repercussion for someone who earns ten minimum wages,” he assesses.

The refund will be made up to 25 days after the purchase. According to the text, the Federal Revenue Service — responsible for the CBS — and the IBS Management Committee will have 15 days to send the amounts to the financial agent. The latter, in turn, will have a maximum of 10 days to transfer the cashback to the beneficiaries.

The way in which the money will be transferred to families has not yet been defined. According to the extraordinary secretary of Tax Reform, Bernard Appy, the possibilities include depositing the cashback on a card, as is the case with Bolsa Família, or returning it at the cashier’s desk at the time of purchase.

4. Differentiated regimes

The different regimes will also affect consumers’ daily lives, as a number of products and services will not be taxed at the VAT reference rate. For thirteen categories, the VAT rate will be reduced by 60%.

Check out the list below

• Education services
• Health services
• Medical devices
• Accessibility devices suitable for people with disabilities
• Medicines
• Food intended for human consumption
• Personal hygiene and cleaning products mostly consumed by low-income families
• Agricultural, aquaculture, fishing, forestry and extractive plant products in natura
• Agricultural and aquaculture inputs
• National artistic, cultural, event, journalistic and audiovisual productions
• Institutional communication
• Sports activities
• Goods and services related to sovereignty and national security, information security and cybersecurity.

Considering that the VAT reference rate is 26.5%, consumers will pay 10.6% tax on products and services that have a reduced rate of 60%.

For services provided by 18 professional categories, the rate will be reduced by 30%.

Check out the list below

• Administrators
• Lawyers
• Architects and urban planners
• Social workers
• Librarians
• Biologists
• Accountants
• Economists
• Home Economists
• Physical education professionals
• Engineers and agronomists
• Statisticians
• Veterinarians and zootechnicians
• Museólogos
• Chemicals
• Public relations professionals
• Industrial technicians
• Agricultural technicians

“In practice, being part of the differentiated regime means that you will have a lower IBS and CBS rate. This impacts the price, because if they were to support 100% of the rate, which is currently estimated at 26.5%, this would imply a reduction in the professional’s own margin that he is not always able to pass on to the end consumer”, explains Leandro Alves.

Considering that the VAT reference rate is 26.5%, consumers will pay 18.55% tax when hiring professional services that have a reduced rate of 30%.

5. Selective Tax

Dubbed the “sin tax,” it aims to discourage the consumption of goods and services considered harmful to health and the environment. What the Selective Tax does, in practice, is to make some items more expensive, to reduce their appeal to consumers. This means that, in addition to being taxed by the CBS and the IBS, some products and services will be taxed by this tax.

Check out the list below

• Vehicles
• Vessels and aircraft
• Smoking products (cigarettes, for example)
• Alcoholic beverages
• Sugary drinks (soda, for example)
• Mineral goods (oil, iron ore, natural gas and coal)
• Forecasting contests and fantasy sport

With the exception of mineral goods, whose Selective Tax rate will be 0.25% on extraction, the other products taxed by the sin tax will have their rates defined by means of ordinary law.

Exports, operations involving electricity and telecommunications are exempt from IS, which may also not be levied on public road and subway passenger transport, nor on goods and services with a 60% reduction in the standard CBS and IBS rate.

Car, soda, beer: see what will be taxed by the “sin tax” in the tax reform