Tax complexity challenges adoption of tax free and competitiveness in Brazilian tourism
Economist Guidi Nunes says that the current Brazilian tax system is known to be quite complex and costly, with high tax rates and a large amount of regulations. “These characteristics may make the country less attractive to foreign tourists compared to other countries that offer more advantageous tax-free systems”, he assesses.
The economist explains that Brazil has several different tax rates, which can make the process of requesting a refund more complicated for foreign tourists. In addition, procedures for requesting a tax refund may vary according to the state or municipality where the purchase was made, making the process more difficult for tourists visiting different regions of the country.
“All this could affect Brazil’s attractiveness as a tourist destination for foreign tourists and could lead the Ministry of Tourism to consider other options to attract tourists, such as tax incentives and tourism promotion programs. However, if Brazil manages to simplify and make the tax free process more efficient, it can increase the country’s competitiveness in the international tourist market”, he emphasizes.
According to the expert, one of the ways to reduce this difficulty is with the tax reform articulated in Congress through PECs 110/2019 and 45/2019, whose main objective is to simplify the Brazilian tax system, reduce the tax burden on the most affected by the crisis and increase tax collection in a fairer and more balanced way.
“One of the main ways to alleviate the country’s fiscal and economic problems is through the unification of consumption taxes (PIS, Cofins, IPI and ICMS) into a single tax, the Tax on Goods and Services (IBS), which would be charged in the destination of the goods or service. This would make the tax system simpler, more transparent and efficient, reducing operating costs and increasing the competitiveness of Brazilian companies”, he points out.
PEC 45/2019
Authored by federal deputy Baleia Rossi (MDB-SP), PEC 45/2019 proposes a broad reform of the Brazilian model of taxation of goods and services. The proposal provides for the replacement of five taxes by a single tax on goods and services (IBS) with the characteristics of a value-added tax. The objective is to simplify the tax system without reducing the autonomy of states and municipalities which, according to the author, “would retain the power to manage their revenues by changing the IBS rate.”
Tributes that should be replaced by IBS:
- Tax on Industrialized Products (IPI)
- Tax on Operations relating to the Circulation of Goods and on the Provision of Interstate and Intercity Transport and Communication Services (ICMS)
- Service Tax of Any Nature (ISS)
- Contribution to Social Security Financing (Cofins)
- Contribution to the Social Integration Program (PIS)
One of the problems of the current Brazilian tax system is the multiplicity of taxes on the production and consumption of goods and services. The author of the proposal also argues that the current taxation causes an increase in the cost of investments, the disproportionate burden of national production in relation to that of other countries and an enormous contention between the tax authorities and taxpayers. The proposal also brings a model in which part of the taxes paid by poor families are returned through income transfer mechanisms.
According to the text, two transition mechanisms will be established for a smooth adjustment for companies and federative entities. One of them is the ten-year forecast for the replacement of current taxes by the IBS. The first two years will be for testing the new tax. Over the next eight years, the rates of all taxes will be progressively reduced and the IBS increased in the same proportion.
The other foreseen mechanism is the sharing of revenues between states and municipalities, which must be done over a period of 50 years. In the first 20 years, the current revenue would be maintained, corrected for inflation, with the portion referring to the growth of the Gross Domestic Product (GDP) taxed by the destination. Over the next thirty years, taxation of the entire IBS would converge gradually.
The proposal also brings the creation of a federal selective tax on products such as cigarettes and alcoholic beverages, with the aim of discouraging consumption.
PEC 110/2019
Presented by Senator Davi Alcolumbre (União-AP) and signed by several other senators, PEC 110/2019 aims to restructure the Brazilian tax system through the unification of taxes and, at the same time, reduce the impacts on the poorest part of the population .
The objective is to reduce the cost of production and hiring, increase competitiveness and consumption power, generate more jobs and stimulate economic growth. According to the text, seven federal, one state and one municipal taxes will be extinguished. They will be replaced by two taxes: one on operations of goods and services (IBS) and the so-called Selective Tax, which is levied on specific goods and services.
Federal taxes that will be extinct:
- Tax on Industrialized Products (IPI)
- Tax on Financial Operations (IOF)
- Contribution to the Social Integration Program (PIS)
- Contribution to the Civil Servant Asset Formation Program (Pasep)
- Contribution to Social Security Financing (Cofins)
- Salary-Education
- Contribution for Intervention in the Economic Domain related to the import and sale of oil and its derivatives, natural gas and its derivatives, and fuel ethyl alcohol (CIDE Combustíveis)
- Tax on Operations related to the Circulation of Goods and on the Provision of Interstate and Intercity Transport and Communication Services (ICMS) – State Tax
- Service Tax of Any Nature (ISS) – Municipal Tax
Medicines and food will be excluded from the list of products taxed by the IBS, which will have its collection managed by an association of state tax authorities. The goods and services included in the Selective Tax will be defined by a Complementary Law, however, it should focus on products such as oil and derivatives; fuels and lubricants; cigarettes; electricity; and telecommunications services.
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