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31/03/2023HIGHLIGHTS
Tax reform: learn more about the different proposals
Bills under discussion may impact the taxation on consumption in Brazil
Discussions on the tax reform have been taking up a lot of space not only in the political arena but also in the media and on the agenda of representatives of the economic sectors. The simplification of the current model is viewed as a priority, as the Brazilian tax system is deemed overtly complex and burdensome for taxpayers.
Two Constitutional Amendment Bills (PEC) on the matter have been proposed: PEC 45 and PEC 110. Both tackle the abolishment of a series of taxes, merging their bases into two new taxes.
The Goods and Services Tax (‘Imposto sobre Bens e Serviços’ - IBS) would be levied along the lines of the Value Added Tax currently in force in most developed countries. In addition, an Excise Tax (‘Imposto Seletivo’ - IS) has also been proposed to curb the consumption of certain products, such as those harmful to health or the environment.
Learn more below about each proposed bill, as well as their main differences and similarities:
Subject |
PEC 45 |
PEC 110 |
|
What does the bill propose? |
The creation of the Goods and Services Tax (IBS) and the Excise Tax (IS).
|
The creation of the Goods and Services Tax (IBS), the Contribution on Goods and Services (CBS) and the Excise Tax (IS).
|
|
Which taxes will be replaced? |
• Program for Social Integration (PIS), • Contribution for Social Security Financing (Cofins), • Tax on Manufactured Goods (IPI), • Tax on the Circulation of Goods and Services (ICMS); and
|
• Program for Social Integration (PIS), • Contribution for Social Security Financing (Cofins), • Tax on Manufactured Goods (IPI), • Tax on the Circulation of Goods and Services (ICMS); and • Tax on Services (ISS). |
|
What are the main characteristics of the new taxes? |
IBS: multi-stage, non-cumulative tax, destination based and levied on the value of the product or service.
IS: steering tax with possibility of single-stage taxation, levied on the value of the product or service. |
IBS: multi-stage, non-cumulative tax, Destination based and levied on the value of the product or service. |
|
How are tax rates calculated? |
The IBS tax rate would be comprised of total of the rates levied at the federal, state and local levels. Each federative unit may establish its own rate. |
Each federative unit may establish its own rate, which would be the same for goods and services. The tax would be destination-based, collected at the place of consumption. |
|
Will the rates be uniform? |
IBS: The same rate applies to all transactions with goods or services. |
IBS: The same rate applies to all transactions with goods or services, barring tax-advantaged treatment.
CBS: the bill does not provide for uniformity in rates. |
|
How will the taxes be levied? |
IBS: levied on all transactions of tangible or intangible goods and services, including imports.
IS: levied on the import, manufacture or commercialization of products that are harmful to health or the environment. |
IBS e CBS: levied on transactions or imports of tangible or intangible goods, rights and services.
IS: levied on the import, manufacture or commercialization of products that are harmful to health or the environment. |
|
Are there any tax breaks in place? |
IBS: No |
IBS and CBS: No IS: Does not apply |
The bills also provide for a "cashback" of sorts, which benefits low-income families with a refund of a portion of the tax collected from them. However, a supplementary law should be passed to regulate said refund.
The PECs do not set the rates for the new taxes, which should be determined at a later stage. However, the possibility of a uniform tax rate for all economic sectors is a major point of contention, as some business segments have their own unique needs.
Transitional stage
Both bills provide for a gradual transitional stage:
PEC 45 |
PEC 110 |
|
Six-year transition. First two years: only the federal portion of the IBS will be levied, PIS and Cofins will be ablished.
From the third to the fifth year: progressive reduction of the ICMS and ISS tax rates, with a corresponding increase of the IBS rate.
From the sixth year on: abolishment of the IPI, ICMS, and ISS taxes, maintaining only the IBS tax.
|
Seven-year transition
IBS First two years: tentative collection of the IBS at a 1% rate. Amounts collected during this period may be offset against the ICMS and ISS taxes due.
From the seventh year on: abolishment of the ICMS and ISS taxes, maintaining only the IBS. First two years: fixed rates in order to compensate for the reduction in the collection of the PIS and Cofins taxes.
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In both transitional models the economic sectors will be required to deal with two very different taxation systems for an extended period, which may be challenging for businesses in the coming years.
Current stage of the bills
PEC 45 is the most advanced in terms of legislative process. Learn more below:
PEC 45 |
PEC 110 |
|
Its process began in 2019. Since then, the bill has passed through the Constitution, Justice and Citizenship Committee (CCJ) of the Chamber of Deputies and is now ready to be voted on by the full house. |
Its process also began in 2019, but an amendment to its text was proposed by the rapporteur. Now, the text is ready to be forwarded to the Senate’s Constitution, Justice and Citizenship Committee (CCJ) for approval. With a more political tone, this bill has about 250 amendments.
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It is worth pointing out that during the legislative process, the bills may undergo further changes.
At present, a Working Group (GT) has been working on a new draft to speed up the tax reform, aiming at reaching a common ground among the many interests involved, such as those of the economic sectors and of state government authorities. A report is expected to be issued by May of this year.
Tax guidance for businesses
All businesses need to closely monitor the latest tax developments in order to better adapt themselves to new trends and regulations.
Clients who count on the consulting support of Domingues e Pinho Contadores can rely on our services to plan their strategies in advance and make decisions in compliance with the rules in force. Count on our support: dpc@dpc.com.br.
How DPC may help your company?
Domingues e Pinho Contadores has specialized team ready to assist your company.
Contact us by the e-mail dpc@dpc.com.br
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