Tax reform has different rates for VAT and 8-year transition
“From now on we will be available to clarify the text as much as possible. We will be discussing with society so that we can improve, but with a focus on building a tax system of interest in our country”, he said.
The text proposes the unification of the five taxes on the consumption of goods and services into a Dual Value Added Tax (VAT). Union taxes (IPI, PIS and Cofins) will give rise to the Contribution on Goods and Services, the CBS, while the state ICMS and municipal ISS will form the Tax on Goods and Services, the IBS.
The PEC also provides for a selective tax (IS) on the production, sale and import of goods and services considered harmful to health or the environment. The IS would not apply to exports.
According to the text, the new tax will have a standard rate (percentage) that will focus on the consumption of products and services. It is not yet known what the level of Dual VAT will be, but it is estimated to be 25%. In addition to the standard rate, there will be a reduced rate for some specific goods and services. In practice, the reduced rate will be half of the standard rate. That is, in the most likely scenario, 12.5%.
Check out the products and activities that may have rates reduced by 50%.
- education services;
- Health services;
- Medical devices;
- Medicines;
- Urban, semi-urban or metropolitan public transport services;
- Agricultural, fishing, forestry and plant extractive products in nature;
- Agricultural inputs, food intended for human consumption and personal hygiene products;
- National artistic and cultural activities.
Some products and services will be exempt from Dual VAT, such as cancer treatment drugs and higher education education services, such as the University for All Program (Prouni).
The preliminary version of the PEC also says that the transition from the current tax system to the new model will last 8 years. The schedule foresees the start of the transition in 2026, with a rate of 1% offset against PIS and Cofins; in 2027, CBS will come into effect and PIS and Cofins will be extinguished. In addition, the IPI is zeroed. Between 2029 and 2032, the IBS (new state and municipal tax) is established and, at the same time, ICMS and ISS are extinguished. This means that, as of 2033, the new tax system will become the only one.
Another transition that the text envisages 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. In principle, this shift will take 50 years, stretching from 2029 to 2078.
According to federal deputy Lafayette de Andrada (Republicanos-MG), the time is now for party leaders and others interested in the reform to look into the text so that the desire to vote on it before the parliamentary recess is fulfilled.
“Brazil needs a tax reform. Our tax model is chaotic. So, it is necessary to carry out this reform that has been suggested for 20 years. Now, we have to study, calmly, with criteria, the text that is being presented for us to do something that is responsible and that actually has a beneficial consequence for the whole country”, he says.
Cashback
The substitutive leaves it to the law to complement the format of the cashbacka mechanism by which citizens will be able to receive back part of the tax paid.
tax regimes
The Free Zone of Manaus and Simples Nacional continue to be treated differently, according to the text. The PEC also lists some specific tax regimes. They are: a) fuels and lubricants; b) financial services, operations with real estate, health care plans and prognostic contests; c) government purchases.
FDR
The text creates the National Fund for Regional Development (FDR), whose objective is to reduce inequalities between states, municipalities and the Federal District. The FDR will be fully funded by the federal government.
In the current model, as the tax collection remains with the state that produced the good or service and not with the one where consumption took place, the governors take the opportunity to reduce the tax burden in order to attract investments, a possibility that ends with the reform. The fund is a way to compensate subnational entities for the change in taxation from origin to destination, which will put an end to the tax war.
Federation entities will be able to apply FDR resources in carrying out studies, projects and infrastructure works, promoting productive activities with high potential for generating jobs and income and promoting actions aimed at scientific and technological development and innovation.
The Union will have to contribute BRL 8 billion in 2029 and this amount will gradually grow until it reaches BRL 40 billion in 2032.
Tax Benefit Compensation Fund
A novelty brought by the rapporteur is the creation of another fund, also financed by the federal government, to ensure that the states do not lose money due to the tax benefits they granted as a way of attracting companies until 2032.
The federal government would transfer about R$ 160 billion over eight years. Check out:
2025 – BRL 8 billion;
2026 – BRL 16 billion;
2027 – BRL 24 billion;
2028 – BRL 32 billion;
2029 – BRL 32 billion;
2030 – BRL 24 billion;
2031 – BRL 16 billion;
2032 – BRL 8 billion.
Tax reform should be voted on in the first week of July, says Lira
Tax reform: House of Representatives WG report proposes Dual IVA
By Brasil 61
