After the Tax Reform was enacted, the Chamber of Deputies and the Senate entered into new stages to implement the proposed changes.
To make it easier to understand, we’ve prepared content with the main details that companies should know at this point. Check it out!
Background to the Tax Reform
The Reform has two main points:
- Simplification of the National Tax System – STN, mainly in the information that companies submit to the tax authorities on a monthly basis;
- Modernization of tax legislation, bringing our laws into line with the best international practices.
In order for modernization to take place, certain principles have been introduced, such as simplicity, transparency, tax justice, cooperation, environmental protection and neutrality.
In order to achieve these objectives, it was decided to transform five taxes into two or, as some prefer, three:
As exemplified above, the new system will adopt the concept of Value Added Tax (VAT), used by the vast majority of countries. It will be made up of the IBS (Tax on Goods and Services), the CBS (Contribution on Goods and Services) and the IS (Selective Tax).
With VAT, the aim is to eliminate “cascading” taxation, in which the same tax is paid several times during the production or marketing process of a good or service. Another important change is that taxation will take place at the place of destination, eliminating the possibility of the “fiscal war” that occurs between various states.
The Selective Tax will be used as a way of discouraging the consumption of products and services that are harmful to human health, such as drinks and cigarettes, and to environmental sustainability and carbon emissions. The role of controlling this consumption is currently played by the IPI.
Recently, the Chamber of Deputies approved the supplementary bill identified as PLP 86/2024, which regulates Constitutional Amendment 132/2023 and establishes the central pillars of tax reform, the aim of which is to change taxation on consumption.
The only point of debate that led to a significant change in the bill was the inclusion of animal protein products such as meat, fish, cheese and salt in the national basic food basket. The products in the basic food basket are exempt from taxation.
The bill was sent to the Federal Senate for analysis and approval, and the vote will again need to be an absolute majority, after which it will go through presidential sanction.
The approved wording regulates the three new taxes listed above: the CBS, the IBS and the IS. Both the CBS and the IBS will be subject to value-added tax – VAT.
Another important point of the reform is the standard rate of 26.5% levied on consumer transactions, regardless of whether the company is a service provider, commerce or industry.
There is also an assessment to be carried out in 2031 to check whether the sum of the CBS and IBS rates, which will come into force in full in 2033, will result in a value higher than 26.5%. In the event that the figure is higher than estimated, a new bill will have to be sent by the Executive Branch, together with the Management Committee, in order to propose a reduction in benefits for sectors or products.
In addition, the 26.5% rate could be reduced by 30% and 60% for selected services and products.
The bill also contemplates a method of refunding taxes paid by low-income individuals called “cashback”.
As for the selective tax, the supplementary bill also establishes the rules for its collection, which will be levied on products that are harmful to health and the environment. In the wording of the bill, companies that produce vehicles (including electric ones), ships and aircraft, smoking products, alcoholic or sugary drinks, mineral coal, mineral goods, as well as betting contests and fantasy sports, will be subject to IS.
These are the main points of the bill approved by the Chamber of Deputies, which reflect significant structural changes to the national tax system.
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