The Tax Reform has been approved and is now entering a new stage to get the proposed changes off the ground.
But do you know what will actually change with the Tax Reform? In this material, we have separated 14 relevant points.
Among the main modernizations proposed is the creation of the Value Added Tax (VAT), which avoids cascading taxation.
With it, for example, the taxes paid by a steel seller will be deducted from the taxes paid by the car manufacturer who bought the steel.
Read on and check out the other changes!
- Maximum rate
The text does not define what can be called the maximum rate for CBS and IBS, i.e. the rate to be levied on sectors that do not benefit from exemptions.
The two taxes will be instituted by complementary law. The (federal) CBS rate can be set by ordinary law and the IBS rate will be determined by the states and municipalities.
By way of comparison, Hungary currently has the highest VAT rate in the world with 27%, followed by Sweden with 25% and Finland in third with 24%. (Source: Senado)
- Tax burden
Given the calculations made by the Senate, the country will not see an increase in the tax burden. To guarantee this, the “reference lock” was created so that the new taxes, in 2031, will be subject to an assessment to check whether the sum of the CBS and IBS rates, which will come into force in full in 2033, will result in a figure higher than 26.5%.
If, between 2027 and 2028, the average revenue from CBS and IS in proportion to GDP is higher than the collection of PIS/PASEP, COFINS and IPI from 2012 to 2021, also in proportion to GDP, CBS will be reduced.
If, from 2029 to 2033, the average revenue from CBS, IBS and IS proportional to GDP is higher than the collection of PIS/PASEP, COFINS, IPI, ISS and ICMS from 2012 to 2021, also in proportion to GDP, CBS and IBS will be reduced.
- Other taxes
Other taxes, such as the state taxes IPVA and ITCMD, and the municipal taxes IPTU and Contribuição sobre Iluminação Pública will also be changed.
4. Tax exemption and reduction
Other cases of reduction
Liberal professionals (services of an intellectual, scientific, literary or artistic nature, provided they are subject to supervision by a professional council) will have a 30% reduction in CBS and IBS.
- Specific regimes
Some segments will be subject to a specific regime with differentiated taxation. Check it out!
- Management Committee
The IBS Management Committee will be made up of 27 members (1 from each state and the Federal District) and a further 27 representing the country’s municipalities.
It will be an independent public body whose main objective will be to reduce conflicts between federal entities.
Its main competencies include: normative and administrative functions, deciding on disputes, as well as collecting and distributing the IBS among the states, DF and municipalities.
- Compensation fund
With regard to legal entities benefiting from ICMS tax incentives granted until 05/2023, the Tax Benefits Compensation Fund will be created.
The purpose of the Fund is to compensate these companies until December 31, 2032 and it will receive contributions from the Federal Government itself.
These tax incentives were part of the states’ strategy to attract companies, but as the Reform provides for taxation only at the place of consumption, the so-called “fiscal war” tends to lose momentum.
- Regional Development Fund
In order to mitigate the effects of ending the fiscal war, the Reform provides for the creation of the National Regional Development Fund (FNDR), which will aim to reduce development imbalances between states.
The Fund will be contributed by the Union, and the states and the Federal District will have to prioritize projects that include strategies and actions to preserve the environment.
70% of the resources will be distributed based on the criteria of the State Participation Fund (FPE) and the rest will be based on the number of inhabitants.
- Transition phase
–> Important: the rules for distributing IBS to states and municipalities will last around 50 years.
- Luxury goods
Another change brought about by the Tax Reform is the levying of a tax on the use of luxury goods, as in the case of:
This change will not apply to agricultural aircraft and vessels used in water transportation and fishing.
- The environment
Environmental preservation was taken into account in the Reform Bill. The Ecological IBS and the Selective Tax were created, which take into account criteria of harmfulness to health and the environment.
Another possibility is the creation, by means of a complementary law, of the Sustainable Development Fund for the States of Western Amazonia and Amapá. In addition, fuels from sustainable sources will continue to be taxed less than fossil fuels.
- Basic food basket
The “National Basic Food Basket” will be tax-free.
- Churches and temples
Another change brought about by the text approved in the Senate relates to churches and temples. Currently, Article 150 of the Constitution prohibits the government from imposing taxes on “temples of any kind”.
With the Reform, this was expanded to “religious entities, temples of any worship, including their welfare and charitable organizations”.
- Possible economic growth
According to estimates by the Ministry of Finance, the Tax Reform, over the next 15 years, could generate growth of 12% to 20% for the country’s economy, leading to a growth of up to 2.39% in Brazil’s GDP by 20232, as well as stimulating the development of sectors such as agribusiness, industry and services.
According to the government, these changes could create between 7 and 12 million new jobs and increase the purchasing power of the Brazilian population.
–> Read also: “Tax reform 2023: context and main pillars”
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