Tax reform: GDP grows without cumulative taxes, says Bernard Appy
“And over time, this tends to grow, because industry in the world is increasingly service-intensive. And then we need to tax services, with a tax that does not give credit and we are generating cumulativeness.”
During the seminar, organized by the Institute for Research and Technological Development of the Machinery and Equipment Industry (Abimaq), which took place last Monday (24) at the institute’s headquarters, in São Paulo, Appy presented that the changes foreseen in PECs 45/ 2019 and 110/2019 reduce Brazilian tax bureaucracy, litigation, cumulativeness and misallocation. “Just eliminating cumulativeness, without considering the 48-month period to recover the ICMS, without considering the fact that an exporter can take years to recover a credit, gives a 4% increase in Brazil’s potential GDP”, he pointed out. “That is why we are discussing tax reform, because it has enormous potential to increase the country’s growth.”
Renato Gomes, a tax lawyer, explains that the idea of simplifying the system will put an end to tax cumulativeness, as what will be considered for VAT taxation will be the transaction itself. “Whether it is a product sales operation or a service provision operation. It simplifies the idea of taxation, simplifies the work of inspection and also simplifies understanding by taxpayers”, he adds.
The tax lawyer explains that there is a need for a tax reform that simplifies the tax calculation, the understanding of the amount paid in tax, which facilitates inspection and collection and allows the entrepreneur not to hire entire departments of professionals, thus leaving , to generate significant cost in the product.
“And I even think that this facilitates and reduces the price of the product and increases our competitiveness even in the international market”, completes Renato Gomes.
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 will 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 30 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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By Brasil 61
