Fábio Bernardo
Lawyer at Marcos Martins Advogados
The issue of tax reform has permeated the lives of taxpayers for decades and always comes up again when there is a transition of power at the federal executive level.
The government’s future Finance Minister, Fernando Haddad, recently announced that he will appoint economist Bernard Appy as his special advisor on tax reform. Appy is one of the technical authors of Proposed Constitutional Amendment 45/2019, a bill that is at a mature stage of discussion in the National Congress.
PEC 45/2019 was conceived by the Center for Fiscal Citizenship (CCiF), a study center that aims to contribute to the improvement of Brazilian public policies, especially fiscal and tax policy.
The focus of the Amendment is to promote a profound reform of the consumption tax currently in force in Brazil, which is applied concurrently by the Union, States and Municipalities, resulting in enormous complexity, high compliance costs and distortions in the system, such as the granting of regional tax benefits and the impounding of credits arising from non-cumulativetaxation.
The proposal is to create a non-cumulative Value Added Tax (VAT), which would be levied along the chain of production and commercialization of goods and services and would be shared between the federal entities.
The new tax would be called the Goods and Services Tax (IBS) and would replace five existing taxes: IPI, PIS, COFINS, ICMS and ISS. In addition to the IBS, the PEC also provides for the creation of a selective tax with an extra-fiscal character to burden the consumption of products such as cigarettes, which have a concentrated (single-phase) incidence.
The proposal also promises to resolve the legal uncertainty regarding the possibility of taking credits from the non-cumulative taxation system, concentrate taxation at the destination (consumer market) and quickly reimburse taxpayers who have accumulated tax credits (exporters, for example), which is a chronic problem in the current taxation model.
Everything indicates that the new government should try to focus its initial efforts on approving the reform of consumption taxation, but of course a reform of income taxation is not ruled out.
There is still no clear sign of what the new economic team will propose in this respect, but there is a tendency to change the distribution of tax incidences, exempting companies and taxing the distribution of profits to shareholders in the form of dividends.
Tax reform, especially with regard to taxation on consumption, is a very welcome measure. Even if there is no reduction in the final tax burden, it is certain that simplifying the system would already generate huge advances in the Brazilian economy, given that the legal uncertainty of the current model ends up driving away many investors.
The main difficulty in implementing the reform is likely to continue to be the support of the states and municipalities, which will end up losing some of their fiscal autonomy, and of some sectors, such as services, which believe there will be an increase in their tax burden under the proposed new model.
The fact is that, although the discourse is that tax reform will be a total priority for the government, the measure is unlikely to be easily approved at the start of the new presidential term, leaving taxpayers, within the current model, to look for legally viable alternatives to optimize their tax burden, which is undoubtedly one of the best ways to gain a competitive advantage.
