The adoption of a non-cumulative tax and collected at destination (Value Added Tax, or VAT) is the future of the new tax system that will be implemented in Brazil. Question: which VAT model will be adopted in the country? The briga in Congress is big.
The Extraordinary Secretary of Tax Reform, Bernard Appy, defends the adoption of a single model for the Union, states and municipalities. More in an exclusive interview with CNNHe recognized that the adoption of the dual model would have more chances of making the tax reform politically viable.
The single VAT model would substitute five taxes: the current IPI, PIS, Cofins (federal), or ICMS (state) and ISS (municipal). Já o dual ficaria divided into a VAT for federal taxes (IPI, PIs Cofins) and another VAT for states (ICMS) and municipalities (ISS).
Today, the fear of states and municipalities is that the adoption of a single VAT means loss of autonomy over the resources allocated to the collection of these taxes.
“There is a certain distrust much more than their own tax administrations, which fear that the Federal Revenue will control their taxes and for this reason they want to have tax competition. I do not have a foundation, but as there is this feeling, that the dual VAT route would be more provable”, he says.
For the secretary, the subject goes through federative mistrust, or what makes the dual VAT have more chances of approval over the single VAT.
“I am glad that it is more likely that the National Congress will decide. For companies, the difference between the two models is very small. The idea is that the new legislation should be either totally uniform or the closest possible between the two models and, therefore, there would not be much complexity for the companies”, affirms the secretary.
Haddad will participate in the negotiations
For Appy, it is a great chance for the reform to be approved this semester by the Chamber of Deputies. On June 6, the report of the work group is scheduled to be presented, together with the reform guidelines.
“One week after that, the new text would be presented or replaced, with the perspective of voting at the end of the legislative semester, in the middle of July. This is the intention presented by the president of the Chamber of Deputies, deputy Arthur Lira ”, he affirms.
Secondly, the next few weeks will be intense in negotiations. The Minister of Finance, Fernando Haddad, will participate in them.
But the transition to the new tax system should not be quick, says Bernard Appy. The current tax system is very complex and the transition to a simple system will require time. The intention is to make the change of all the federal taxes in the middle of 2025, depending on the period of approval of the supplementary law.
Já the transition from ICMS/ISS will take place from 2028.
“There we would need a few years to complete the entire transition. Our system is extremely distorted and people can’t make it from day to night to change everything because it would have a very big effect on companies that make investments taking into account the current tax system”, he points out.
For Appy, the end of the transition should occur between 2030 and 2031.
“At this time we hope to have created a much more efficient system that people will look at and be much more attractive for investments”, he says.
From Oiapoque to Chuí
Due to the tax bureaucracy today in Brazil, companies spend about 1,500 hours just to calculate or pay taxes. There are thousands of tax regulations. Segundo o Instituto Brasileiro de Planejamento Tributário, if these regulations are printed on A4 paper with Arial 12 font, we should have enough papers to go from Oiapoque (AP) to Chuí (RS).
The tax regulations in force are equivalent to a book of 122 thousand pages. Due to its complexity, medium and large companies spend R$ 180 billion reais per year to pay entire sectors dedicated to the tax area.
“In companies from around Brazil, it is necessary to have at least 60 to 200 people wearing nisso. In other countries there are 5 people”, says Appy.
“The Brazilian tax bureaucracy is the biggest in the world. Isso going to fall. Today, 75% of the GDP is in litigation, contentious. Or Brazil is the country that fears the biggest tax litigation in the world as well. The tax reform will still defund investments and exports, and countries that have VAT bonuses do not tax investments, do not tax exports.
The secretary points out that the current tax system creates “completely absurd situations”.
“For example, there are cases in which a tax benefit makes or walks with products leaving State A, to go to State B carrying a merchandise and return to State A, to reduce taxes. The company that is doing this is now being rational because it is saving taxes. But for the country it is obvious that the tax system is generating completely irrational situations”, he explains.
Some points have been more controversial and need to be balanced, secondly. To make the tax reform viable, it is necessary to create a tax on added value that is as homogeneous as possible.
“More people know that to make it politically viable isso going to have to be made some concessions for some sectors. So now there are two sides that need to be balanced to make approval possible. The sectors that have clearly appeared in this negotiation are the agribusiness of food ware. But there are also sectors such as those of health and education, which will very likely need to have a differentiated treatment to make the approval of the tax reform viable”, he said.
According to the National Confederation of Agriculture (CNA), 98% of the two rural producers are physical persons and therefore are not direct contributors to PIS, Cofins, IPI and ISS. The confederation argues that the new model will all have to pay the same rate estimated at 25%.
Another important question is the federation. Segundo Appy, today I am supporting the reform in two small municipalities and in large parts of two states.
“Practically all the governors of the two states are supporting the tax reform, but still have some questions that we would like to have more clarity in order to confirm this support. For example, how will the regional development fund be that should replace the current policy of fiscal benefits, considered inefficient? And there is still some question about the big municipalities. But I had a lot of dialogue and I hope that soon people will also have support for them”, said the secretary.
Secondly, in the meantime, the tax burden for the consumer will be maintained. But there will be a redistribution of it.
“Some benefits and services will be less taxed than what you see. For example, telecommunications and electrical energy. Others will be more taxed. But in practice, for the consumer, you will have a price reduction, because today you are paying for tax inefficiency. The bureaucratic cost to pay taxes ends up turning cost that is repassed for the price. The consumer is paying for isso. The tendency is that the price for the consumer ends up falling on average due to the elimination of the inefficiencies of the current system”, says the secretary.
In the case of electrical energy, which would be one of two less taxed sectors, second or secretarial, a study by the Brazilian Association of Distributors shows that if the taxes are not assessed on their own basis of calculation formation, now the electricity bill could be reduced by at least 20%, about R$ 40 billion less expenses.
The aliquot proposed for the VAT, of 25% according to Appy, is necessary to maintain the current arrecadação. I went to the rate to be checked so that the tax reform does not mean an increase or a decrease in taxation in the country. The idea is simplicity. Meanwhile, according to Tax Foundation, that rate would be one of the highest among the countries that adopt VAT.
The average tax in Europe is 21%, and among the countries of the Organization for Economic Development (OECD), 19%.
“It is true that people would be among the elderly, but Brazil is already paying for it in a totally flat way and, still, we pay for it in a way without transparency. People pay a very high price for consumption and do not know how much they are paying because the Brazilian system today is so complex that it is impossible for you to know in fact or how much tax was paid throughout the production and marketing chain of any good service. So, what we are doing is to give transparency about the price that Brazil is paying today for its consumption”, he says.
The secretary, therefore points out that the move should lead to the strengthening of the economy and the labor market.
“But the reduction of the tax bureaucracy and two costs that come from them is that they can give profits to companies and consumers. It depends a lot on the projection of the GDP, but in a conservative assumption, over the decades of tax reform, we should increase the business by 7% and have a 12% increase in the purchasing power of the consumer in this period, while we would have the reform tax,” he says.
Second Secretary Bernard Apppy, direct taxes, such as the income tax, should be part of the second phase of the tax reform, which is expected to take place in the second half of this year. On purpose, he says, it is not detailed.
“More than the objective is to make the Brazilian system more fair, or it is said, to collect more taxes from high-income people, who today are little taxed, and to disgrace the middle class. We also want to correct distortions that end up generating inefficiencies. Today, in the taxation of income, people have many gaps that allow families with higher income to pay little income tax in the country. And a fact that we have to work to date these gaps and return to fairer taxation in our country”.
E o governo já está trabalhando nisso. One of these gaps must be dated in 2024. This year two non-foreign investments made by individuals residing in Brazil were approved for taxation.
From the year that we see this tax, it will be collected on funds, fixed income titles, deposits and assets. Offshores (companies opened in tax havens to manage non-foreign resources) are also part of the package.
Source: CNN Espanol