Agência Brasil 61 interviews Eduardo Maneira about Tax Reform

Agency reporting Brasil61 interviewed Dr. Eduardo Maneira, founding partner of Maneira Advogados and president of the OAB Special Tax Law Commission, to talk about the tax reform proposals that are being debated in Congress.

Tax Reform: experts say what impacts on the population will be felt in the medium and long term

Publication date: October 18, 2021

For representatives of the OAB and FGV, if approved, the PEC 110 report tends to improve the business environment and, only then, reflect on improvements for the citizen. Poorer people may feel the effects more quickly if the device that returns money for basic food products remains.

Audio (01:56s)
Photo: Agência Brasil

Experts interviewed by the portal Brasil61.compoint out that the approval of the tax reform (PEC 110/19), in the form of the report by Senator Roberto Rocha (PSDB/MA), would only bring benefits to the population – such as a drop in the price of products and an increase in employment – in the medium and long term.

The PEC provides for the unification of the main taxes on consumption in the country, both at federal, state and municipal levels. In practice, the proposal creates a Value Added Tax, VAT.

As this tax is divided into two, it came to be known as Dual VAT: a Union VAT, which would unify PIS and Cofins, called Contribution on Goods and Services (CBS), and a VAT for subnational entities (states and municipalities), which would unify ICMS and ISS, the Tax on Goods and Services (IBS).

For Eduardo Maneira, president of the OAB Special Tax Law Commission, the text is an advance in the tax system, because it rationalizes and simplifies tax collection, which can benefit citizens. “If this reform is approved, I think not in the short term, but in the medium term, yes, the population as a whole will feel its effects, because it modernizes consumption taxation, bringing us closer to what taxation is in more developed countries”, he assesses.

According to Pierre Souza, finance professor at Fundação Getulio Vargas (FGV), the tax reform will simplify the business environment for investors and Brazilian companies, benefiting consumers indirectly. "It's not a type of reform that overnight we see the impact and everything becomes different in the country and it's a revolution. It's not 'now we're going to pass this PEC, taxes are going to decrease or something like that'. It's that type of reform that has a very big impact in the long term", he highlights.

However, he says that the poorest population may experience improvements more quickly. Today, basic food basket items are exempt. In other words, there are fewer taxes on these products. Anyone who buys a bag of rice, for example, has this tax benefit. The proposal by senator Roberto Rocha (PSDB/MA) ends the tax exemption on the product, but creates the possibility for lower-income consumers to “pay less”.

“I take whoever is on the Single Registry and to that person I return the [money] they would have paid in taxes on basic food basket items. Instead of having a benefit for all basic food basket products, that is, even those who don't need to benefit, we now have a benefit that is much more focused on those who really need it”, highlights Pierre.

Senator Roberto Rocha (PSDB/MA), rapporteur of PEC 110/2019, states that the refund of money to the poorest will be possible with the adoption of the electronic system. "It's focusing on those who are most in need and have to be [the] most favored. Rice, beans, medicine will become cheaper for several reasons, one of them is that today there are few paying a lot. We, with the electronic system, will include everyone. We will have many paying less, paying little. But, this doesn't happen overnight. You don't sleep with one system and wake up with another. There is a transition."

Thiago Sorrentino, professor of Tax Law at Ibmec Brasília, says that the tax reform proposal is good, but that alone it will be insufficient to bring a change to the lives of the poorest, especially in the short term. "We hope that the tax reform will bring improvements in the business environment and this will subsequently lead to an increase in employment and the possibility of remuneration. This will only happen in the medium, but most likely in the long term."

Support and opposition

The reform of the Brazilian tax system has been under discussion for around 30 years. However, the proposals surrounding the modernization of the system faced a lack of consensus between the productive sectors, such as commerce, services and industry, and the federation entities, such as the Union, states and municipalities.

At the beginning of October, the 5th, when the PEC 110/2019 report was delivered, in addition to the rapporteur, senator Roberto Rocha (PSDB/MA), the president of the Senate, senator Rodrigo Pacheco (DEM/MG), the president of the National Confederation of Municipalities (CNM), Paulo Ziulkoski, and the president of the National Committee of State and District Finance Secretaries were present. Federal (Comsefaz), Rafael Fonteles.

The entities expressed support for the text, as well as the Brazilian Federation of State Tax Inspectors Associations (Febrafite), and the National Confederation of Industry (CNI), among others. According to Roberto Rocha, states with very different profiles, such as Piauí and São Paulo, expressed support for the proposal.

“In such a way that I realize that, in this construction of consensus, we have come very far. I think we cannot miss this window of opportunities, perhaps the last of this generation, to approve this and race against time”, he reinforces.

According to experts, the report has broad support, but there is two considerable opposition: from medium and large municipalities and the services sector. "Companies providing services will be really harmed, they will have an increase in tax burden; and large capitals, which generate a lot of resources, especially in relation to the new ICMS [will also be harmed]. So, it is not unanimous", highlights Thiago Sorrentino.

Pierre Souza analyzes that the resistance of medium and large municipalities to the text is the biggest obstacle to the approval of PEC 110. “In general, the municipalities are largely in favor, but there are a few and with a lot of weight, which are those that collect more significantly and, of course, they will have to share a more general pie, they have some resistance.”

The opposition of these cities to the proposal makes Eduardo Maneira skeptical about the approval of the tax reform. "We know the political strength that mayors have in Brazil and the municipalities losing the ISS is... something, for them, unacceptable, especially the large municipalities. It seems to me that even the small municipalities would support this tax reform, but cities like São Paulo, Rio de Janeiro and Belo Horizonte, are radically against it", he recalls.

Fabio Bentes, senior economist at the National Confederation of Commerce in Goods, Services and Tourism (CNC), said the proposed tax simplification is controversial. "Despite the fact that the PEC provides for the extinction of several taxes, the big question is that we would have to live with two tax systems for a few years: the current one and the one proposed by the PEC. Will companies be able to coexist with two systems, a chaotic one, and a new system, for so many years?", he asks.

According to him, the report raises “serious doubts” about the impact of the tax burden, especially on the services sector. "The text and the proposal still do not establish what the neutral rate of taxes created is and we know that the tax will have to guarantee, at least, the same revenue generated today for federative entities. It is likely that the rates will be quite high and companies in the service sector will be burdened because they do not have the capacity to generate tax credits like other sectors of the economy", he criticizes.

https://brasil61.com/n/reforma-tributaria-especialistas-afirmam-quais-impactos-sobre-a-populacao-serao-sentidos-a-medio-e-longo-prazo-pind212892