Clean bill was approved in first round with 382 votes in favor and 118 against, after speaker released remote voting
07/07/2023
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Main text of tax overhaul was passed Thursday night by 382 votes — Foto: Zeca Ribeiro/Câmara dos Deputados
The main text of the tax overhaul was passed Thursday night in the first round of voting in the Chamber of Deputies by 382 votes to 118. The historic vote came after last-minute adjustments and negotiations between the rapporteur, Deputy Aguinaldo Ribeiro, and Speaker Arthur Lira with governors, mayors, and business sectors. Mr. Lira authorized the remote voting to facilitate the passage.
According to the rapporteur, members of the government, and experts, the tax reform will simplify the collection of taxes in the country, promote the end of the tax war, attract investment, and promote economic growth. The matter still needs to be considered by the Senate before it becomes law.
The text consolidates services tax ISS, sales tax ICMS, social taxes PIS and Cofins, and industrial tax IPI into three new taxes: the Contribution on Goods and Services (CBS), which will be administered at the federal level; the Tax on Goods and Services (IBS), which will be administered by the Federative Council, composed of representatives of the states and municipalities; and a federal excise tax (IS), which will be levied on goods and services that are harmful to health and the environment.
The collection will gradually shift from the place of origin of the product/service to the place of consumption. This federal transition will only end in 2078 and, to mitigate the effects of the end of the tax war, the federal government has promised to transfer R$40 billion per year as of 2032 for the states to invest or subsidize the attraction of companies.
For the taxpayer, the transition would begin in 2026 and last until 2032. PIS, Cofins, and IPI would be eliminated as early as 2027 when the CBS and IS are expected to come into effect. As for the IBS, administered by states and municipalities, the timeframe will be longer: it will begin in 2026, with a test rate of 0.1%, and will be increased step by step from 2029 to 2033, when ICMS and ISS will be extinguished.
Finance Minister Fernando Haddad actively participated in the negotiations. He met with Mr. Lira and also went to the Planalto Palace to inform President Luiz Inácio Lula da Silva about the progress of the negotiations.
Upon his return, he told reporters that the “specters” of inflation and rising food prices had been dispelled. “We have shown the exact calculations to prove that we are sure of the step we are taking,” he added.
It was already night when Mr. Ribeiro read in the Chamber the new version of the proposal to amend the Constitution (PEC) with the reduction to 40% from 50% of the VAT rate that will be levied on activities and products that will have differentiated treatment, such as health, education, public transport, culture, and agricultural products.
Thus, there will be three rates: a zero rate for some basic food products to be defined by a supplementary law, in addition to horticultural products, fruits, and eggs; an intermediate rate, for the activities benefiting from the 60% reduction in the general rate; and a full rate, which will be applied to the other activities in the economy.
There will be specific regimes for fuels, real estate operations, health care plans, financial services, and betting (lotteries). In the new opinion, however, the rapporteur modified the PEC to provide that part of the financial services will be taxed under VAT. “We will treat tariff and banking services with VAT and spread with rate as it is taxed today, with rate defined by supplementary law,” the rapporteur said.
A special regime has also been created for hotel services, amusement parks and theme parks, restaurants, and regional aviation. This was a request from the events and tourism sector, which complained of an increase in the tax burden and loss of competitiveness with the normal VAT. The exact model of how these activities will be taxed will be defined by law.
The rapporteur modified the excise tax, which will be levied on goods and services that are harmful to health and the environment but cannot be levied on items that have a reduced VAT rate. In this way, the agriculture sector will be preserved from this tax.
Mr. Ribeiro also adjusted the articles of the Manaus Free Trade Zone and Export Processing Zones (ZPEs) to ensure differential treatment and competitive advantages for companies located in these regions. The measure was supported by Amazonas deputies.
The opinion was also excluded from the ITCMD, levied on donations and inheritances, and transfers to non-profit entities with public and social relevance purposes, including relief and charitable organizations of religious entities and scientific and technological institutes. The conditions will be established by supplementary law.
The text also excluded the provision that the cashback (tax refund) will have as one of its objectives the reduction of racial and gender inequality. The version that will be voted on only establishes that this policy will seek to reduce income inequalities.
During the day, the finance minister also presented the rapporteur with a proposal for the Federative Council. The proposal included two criteria for the governance of the Council: population and the number of states per region. “The two criteria must be met. To pass the Federative Council, you have to have a majority of states and a majority of the population. So, it resolves, you don’t have a bias one way or the other,” he said.
São Paulo Governor Tarcísio Gomes de Freitas asked for adjustments. Federative issues were partially included in the new report.
The Federative Council will be formed by 27 representatives, one from each state, plus 27 representatives from the municipalities and the Federal District, of which 14 will be elected based on equal votes among the entities and 13 based on population.
In the case of the council’s deliberations, the subjects will be approved only if they receive at the same time the support of the majority of the states and the representatives corresponding to more than 60% of the country’s population. In the case of municipal votes, an absolute majority is required (14).
The text does not contain the criteria for the distribution of the state funds that will be created for investments in the states and compensation for the end of the ICMS benefits granted by the governors that will be extinguished. The value was kept at R$40 billion, with only the federal government’s contribution, although the governors asked for R$75 billion. The understanding is that this will have to be negotiated in the Senate and that giving in now would force an even larger amount later.
*Por Raphael Di Cunto, Marcelo Ribeiro, Jéssica Sant’Ana, Larissa Garcia — Brasília
Source: Valor International