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Proposal was introduced by the Socialism and Freedom Party (PSOL) in bill establishing Goods and Services Tax committee

10/31/2024

Brazil’s Lower House rejected the creation of a Wealth Tax (IGF) and, with this decision, completed the second phase of tax reform regulation on Wednesday (30). The proposed tax was introduced by the Socialism and Freedom Party (PSOL) within the bill to create the administrative committee for the upcoming Goods and Services Tax (IBS). The text now moves to the Senate.

The committee will be comprised of state and municipal representatives to manage administrative operations, oversight, and the allocation of the IBS, which will replace the Tax on the Circulation of Goods and Services (ICMS) and the Service Tax (ISS) under the new tax system. The bill sets operational guidelines for the committee and outlines the transition to the new framework, including fund distribution among states and municipalities.

The primary debate in the Lower House focused on PSOL’s amendment to create the Wealth Tax, which was rejected by a vote of 262 to 136. The proposal called for a 0.5% annual tax on wealth between R$10 million and R$40 million, 1% on assets between R$40 million and R$80 million, and 1.5% on wealth exceeding R$80 million.

Congressman Ivan Valente (PSOL, São Paulo) argued that the payment would be a “pittance” for multimillionaires and would still include deductions. He noted that the tax is already provided for in the Constitution but has never been regulated.

On the other hand, Congressman Gilson Marques (New Party, Santa Catarina) criticized the tax proposal, arguing that the wealthy would move their money out of Brazil. “Multimillionaires invest in cities, create jobs, and support the economy,” he said.

The initiative only gained support from left-leaning parties: PSOL, Brazilian Socialist Party (PSB), Workers’ Party (PT), Communist Party of Brazil (PCdoB), and Green Party (PV). Meanwhile, the Social Democratic Party (PSD), Brazilian Democratic Movement (MDB), Republicans, and Podemos, from the governing coalition, along with opposition parties Liberal Party (PL) and New Party, voted against taxing millionaires and billionaires. The coalition of the Brazil Union Party, Progressive Party (PP), Brazilian Social Democracy Party (PSDB), Citizenship Party, Democratic Labor Party (PDT), Democratic Republican Party (PRD), and Solidarity allowed members to vote freely due to internal differences.

Despite advocating for taxing the wealthy, the Lula administration remained neutral due to disagreements among coalition parties in Congress. “The government understands that the world is debating this and that it will be a central issue at the G20 discussions next week,” said Congressman Reginaldo Lopes (PT, Minas Gerais), who is also the deputy government leader.

On the other hand, lawmakers upheld a provision for a five-year review of products and services with reduced tax rates to assess the effectiveness of these tax expenditures. The PL had called for the removal of this requirement, but the proposal was rejected by a 292-106 vote.

Other adjustments made on Wednesday were the result of agreements between parties and the bill’s rapporteur, Congressman Mauro Benevides Filho (PDT, Ceará). He introduced four changes to the base text approved by the Lower House in August.

The Lower House rejected a proposal to apply the Inheritance and Gift Tax (ITCMD) to VGBL (Free Benefit Generator Life) pension plans left as an inheritance. This tax was requested by governors, who claim that these instruments are used to bypass inheritance taxes, but it faced resistance from plan operators.

The rapporteur also accepted that companies contracting self-employed business owners for services will not be held liable for unpaid taxes. “If an Uber driver doesn’t pay tax, the platform should pay. But now, no one will be responsible,” Mr. Benevides criticized. However, he included this amendment as part of the agreement to pass the bill.

Additionally, the bill removed the provision to apply the ITCMD tax to the disproportionate distribution of profits among business partners and the ban on companies within the same economic group from transferring the ICMS or future IBS credits to one another.

*By Raphael Di Cunto, Marcelo Ribeiro, Valor — Brasília

Source: Valor International

https://valorinternational.globo.com/