Additional tax on sugary drinks reinstated as Congress debates changes
12/17/2024
The tax reform working group in Brazil’s Lower House has proposed rejecting tax breaks approved by the Senate for sectors such as veterinary services, pet health plans, basic sanitation, funeral homes, commercial representatives, biscuits, mineral water, and soccer corporations (SAFs). The group also opted to reinstate the additional excise tax on sugary drinks, such as soft drinks.
The move, anticipated by Valor, aims to lower the standard rate of the upcoming Goods and Services Tax (IBS) and Contribution on Goods and Services (CBS), central pillars of Brazil’s new tax system. The Senate’s version of the bill pushed the rate above 28%, exceeding the 26.5% limit agreed upon by both houses: the more approved exceptions, the higher the standard rate applied to other goods and services.
“Our revised version reduces the standard rate by 0.7 percentage points,” said the bill’s rapporteur, Congressman Reginaldo Lopes. He did not specify the base for this calculation but maintained that improved tax compliance would keep the rate at 25%.
Conversely, the working group accepted all tax benefits for the Manaus Free Trade Zone, which was approved by Senate rapporteur Eduardo Braga, a prominent advocate for the region. However, some lawmakers hope to challenge these benefits when the bill goes to a floor vote, where parties can request individual votes on specific provisions.
These decisions were made during meetings with party leaders and House Speaker Arthur Lira, who unexpectedly scheduled the reform for a floor vote on Monday night. The abrupt move caught many by surprise, including members of the working group, some of whom were not in Brasília. The session was postponed to Tuesday to ensure broader attendance.
Among the Senate’s changes supported by the working group are tax rebates for telecommunications services used by low-income households, reduced rates for diapers (60% discount), bars, restaurants, hotels, and amusement parks (40% discount), and a tax exemption for gratuities up to 15%.
The group also upheld Senate amendments for financial services, including tax breaks for credit recovery and loan guarantees. Additionally, credit-receivable funds (FIDCs) will be taxed under financial sector rules when early liquidation occurs, provided the fund is not classified as an investment entity.
However, the Lower House’s working group rejected Senate proposals for tax cuts on SAFs, veterinary services, funeral homes, extracurricular schooling, and basic sanitation, along with the Senate’s list of discounted medications. Veterinary services and pet health plans will see a 30% rate reduction instead of the Senate-approved 60%, while other sectors will pay the full tax rate. Biscuits, cookies, and mineral water, which received a 60% discount in the Senate, will also be taxed at the standard rate.
The most contentious issue remains the Manaus Free Trade Zone. In the Senate, Mr. Braga pushed for a zero CBS rate on goods and services exclusively for businesses located in the region’s industrial hub. He also extended the deadline for utilizing tax credits from six months to five years and removed caps limiting credit use for non-tech goods. For example, while capital goods previously faced a 75% cap, the Senate allowed full credit utilization for any benefit approved by state law by December 31, 2023.
Amid growing opposition, Mr. Lira and party leaders supported these proposals, but a specific tax benefit for fuel refining in the Manaus Free Trade Zone remains up for debate. If approved, it would benefit Atem Group, which purchased Petrobras’s Ream refinery last year.
The oil and gas sector has voiced strong objections, calling the provision anti-competitive. The Brazilian Institute of Oil and Gas (IBP) warned that exempting certain refineries from taxes would distort the market. “In a sector with high tax burdens and narrow profit margins, this would create a competitive imbalance, as refineries in the Manaus Free Trade Zone would enjoy exemptions while others bear the full fiscal burden,” the IBP said.
Meanwhile, the oil workers’ federation (FUP) and the Amazonas oil workers’ union (SINDIPETRO) condemned the proposal as “blatant opportunism” designed to “favor business allies.”
In response to the debate, Mr. Braga criticized industry federations from São Paulo and Rio de Janeiro on social media. “It is unacceptable for entities like FIESP [Federation of Industries of the State of São Paulo] and FIRJAN [Rio de Janeiro Federation of Industries] to act once again against Amazonas while our development model remains an example of environmental preservation and job creation,” he wrote.
The Lower House also decided to reinstate the excise tax on sugary drinks, reversing the Senate’s rejection. The tax aims to discourage the consumption of goods harmful to health and the environment.
For automobiles, the Lower House proposed linking the excise tax to such as engine power, performance, technological density, local production, and vehicle category. The tax will now apply only to mineral extraction, not exports. The Lower House also prohibited tax substitution mechanisms for soft drinks and cigarettes.
*By Raphael Di Cunto e Marcelo Ribeiro
Source: Valor International