The Brazilian Senate has approved the tax reform, which now returns to the lower house, where the introduced changes will be analyzed.
The Chamber of Deputies had previously approved the project before it was sent to the Senate, and experts expect it to be processed quickly with few changes in a second vote.
Most tax experts BNamericas spoke with praised the text overall, largely because it simplifies taxes and potentially reduces the likelihood of disputes, as well as ending decades of debate on the issue.
At the same time, they highlight certain worrying aspects, such as the introduction of tax exemptions and benefits by senators, which tend to increase the global single tax rate, and the uncertainty about what complementary legislation will need to be passed once the reform is implemented. to permit.
THE GOOD, THE BAD AND THE UGLY
The good
A central point of the reform was the combination of the ISS, ICMS, PIS, Cofins and IPI taxes with the federal CBS tax; the goods and services tax (IBS), which is levied on states and localities; and the selective IS tax levied on goods and services that are harmful to health and the environment.
“We need to understand the premises of all this. Why do we want tax reform so badly? Basically it’s about simplifying the system, not necessarily about reducing the tax burden. That would be a consequence,” Douglas Mota, tax partner at law firm Demarest Advogados, told BNamericas.
Mota said the reform would reduce litigation in the federal and distributed tax payment system and provide greater clarity to companies, especially multinational corporations, by centralizing tax collection.
One of the main problems that experts have identified in the current model is the different legislation of states regarding taxes, as well as the overlap and duplication of taxes.
“We will continue to have exceptions [impositivas], but they will be smaller and centralized. This will help companies comply with regulations,” Carolina Romanini Miguel, tax partner at law firm Cescon Barrieu, told BNamericas.
The Senate also added a ban on raising taxes above the average over the last decade.
The text set a cap calculated based on the average tax collection to be eliminated (ICMS, ISS, IPI, PIS and Cofins) between 2012 and 2021, measured as a share of GDP. The reference rate of the new taxes replacing the old ones will be reduced if it exceeds the established ceiling.
Other positive points highlighted by experts include clarifications on the points that caused uncertainty in the House of Commons version.
For example, Romanini Miguel mentions the detail that the IS selective tax will not be cumulative throughout the chain.
Leonardo Roesler, tax and commercial law specialist and partner at law firm RMS Advogados, said in a statement that any analysis of the impact on companies until the final text of the law is passed into the legal system is only conjecture.
The bad and the ugly
As the Senate expands exemptions and creates new specific tax regulations, the general tax rate tends to increase. Both Mota and Miguel are very critical of the extension of exceptions in the Upper House text, although this was expected.
However, both point out that the criteria that granted different tax rates to certain sectors and not others were not very clear. They noted that it was politically difficult to pass a reform without retaining some benefits.
Romanini Miguel, from Cescón, explained that the country grants sectoral advantages and tax exemptions as part of its economic culture.
Another challenge is that companies still face a long transition period in the reform, which some experts say could impose tax compliance costs as they will have to operate in two parallel systems for several years.
When viewed by sector, services tend to be among those most affected by higher tax burdens following tax unification. “The service sector will certainly see a brutal tax hike. This will lead to an increase in prices,” said Demarest’s Mota.
One of the sectors that benefited most from the Senate text is telecommunications. The water and highway sectors could also benefit from tax breaks.
Vivien Mello Suruagy, director of the association of call centers and telecommunications infrastructure companies Feninfra, said in a statement that the Senate text represents “an important step forward” for the sector, as the selective IS tax will not apply to telecommunications.
However, the mining industry complains about the impact of the selective extraction tax, which is also likely to hit the oil and gas industry.
INTO THE FUTURE
After the reform is finally adopted, a long period of transition and rule-making begins. These new rules must be formulated in the next two years, i.e. during the current legislative period. Mota sees this situation as potentially positive.
“The same parliamentarians who voted for the reform will discuss and vote on the supplementary laws. “We have to pay attention to that,” he said.
“Now we must strictly follow the supplementary laws. It will be a delicate process,” Romanini Miguel added.
Although there is still a long transition ahead of us and despite numerous exceptions, most experts believe the outcome is positive.