Eduardo Maneira comments in Correio Braziliense on the tax reform proposal being processed in the Senate

Report from Correio Braziliense highlights that PEC 110/2019, on tax reform, which is being processed in the Federal Senate, should have its report completed this week. Dr. Eduardo Maneira was heard to speak on the topic.

CREDIT: MAURENILSON FREIRE/CB/D.A PRESS.

Senate tax reform rapporteur concludes text this week

Published in 05/07/2021

ROSANA HESSEL

The expectation of a broader tax reform proposal, along the lines of a constitutional amendment, may resume this week, as Senator Roberto Rocha (PSDB-MA) intends to present the PEC 110/2019 report, which is being processed in the Federal Senate.

“I conclude my report this week”, informed the rapporteur to the Blog. The original proposal provides for the simplification of the tax system with the unification of nine taxes and the creation of dual Value Added Tax (VAT), as occurs in Canada.

PEC 110 provides for the unification of nine taxes: IPI, IOF, PIS, Pasep, Cofins, CIDE-Combustíveis, Salary-Education, ICMS, ISS. Meanwhile, the Chamber's proposal, PEC 45, unifies five taxes (IPI, PIS, Cofins, ICMS and ISS). Both were created due to the delay of the Minister of Economy, Paulo Guedes, who did not forward a broad tax reform to the Executive, and, when he tried to implement the proposal, the controversy over the re-creation of the CPMF arose, which culminated in the dismissal of the then special secretary of the Federal Revenue, Marcos Cintra.

And, although the rapporteur of PEC 45, deputy Aguinaldo Ribeiro (PP-PB) presented a report this year, the text was discarded by the president of the House, Arthur Lira (PP-AL). Meanwhile, minister Paulo Guedes embarked on a piecemeal reform. However, the two stages of the Executive's tax reform proposal amid President Jair Bolsonaro's popularity crisis seem to have as their main objective to increase populist spending to achieve re-election in 2022, which has left experts concerned about the fundraising purposes of the proposals instead of simplifying the complex tax system.

Analysts predict an increase in the tax burden in the bills sent by the economic team, both in the proposal that creates the Contribution on Goods and Services (CBS), unifying the PIS-Cofins rates at 12%, which today varies from 3.65% to 9%, and the one that foresees changes in the Personal and Corporate Income Tax (IRPF and IRPJ) and creates the 20% tax on dividends. Tax experts spare no criticism of the Income Tax proposal proposed by Guedes and point out setbacks, despite the speech of the government of that the bill promotes tax justice. Survey carried out by the Brazilian Institute of Tax Planning (IBPT), legal companies may have a tax increase of up to 50%.

Eduardo Maneira, president of the Special Commission on Tax Law of the Brazilian Bar Association (OAB), assesses that the proposed changes to the IR brought more complexity to the collection of this tax for both individuals and legal entities. "This proposal does not simplify and brings a small benefit to the population when it is distributed individually. It is more of an electoral and populist proposal. It increases the tax burden and will have inflationary repercussions and deter investment. There are problems in the text that could open up space for judicialization, but let's wait for what will actually pass in Congress", he assesses. “There is a perfect storm being created”, he adds.

Jorge Rachid, consultant and former secretary of the Federal Revenue, also spares no criticism of the Executive's project to change the Income Tax. In addition to pointing out problems in the wording of the text written by the economic team, which has articles with more than one interpretation, he recognizes that the 20% taxation of dividends has a very heavy weight on the income generated by the legal entity. "It is disproportionate in relation to other taxes that affect profitability and is accompanied by an obligation on property management companies to change declarations to the real profit that they did not need. These pressures will culminate in an increase in the tax burden and, consequently, in the price for those who can pass it on to the client", he warns.

The former Secretary of Revenue also warns of the fact that the limit of R$40,000 per year for the simplified IRPJ declaration should reach practically the majority of members of the middle class, because, currently, people who currently earn between R$40,000 and R$83,000 and who end up opting for the simplified declaration, which has a 20% IR discount, will be the most harmed by this change.

The president of Sindifisco Nacional, Kleber Cabral, in turn, defends the proposal and classifies it as a “paradigm change”. “The project is very much in line with what we have been defending for a long time, which is tax justice and a better distribution of the tax burden”, he states. According to him, the most affected business segments are those that are pointing out defects, remembering that only Brazil and Lithuania do not tax dividends. "The fact is that the project takes the top floor and they don't like it, because it closes a series of loopholes in the legislation that allowed tax planning. These are advanced anti-avoidance measures, in line with the recommendations of the OECD (Organization for Economic Development Cooperation)", he adds.

The chief economist at RPS Capital, Gabriel Leal de Barros, says that there are “good things in the proposal”, such as the correction of the Income Tax table, raising the exemption limit from R$1,900 to R$2,500. "The IRPF gap is huge, but there is some correction now. But the proposal is timid, because they did not propose a higher marginal rate for the top of the pyramid", assesses the economist, recognizing that "a better calibration is needed on the issue of IRPJ and dividends".

According to Sindifisco estimates, the historical gap in the IRPF table between 1996 and 2019 was 103.9%. Kleber Cabral admits that the correction proposed by the government is small. “It's a timid step, but I can't help but recognize that it's in the right direction”, says the entity's president.

In Cabral's assessment, the broad tax reform, which has been defended by businesspeople, will be possible with PEC 110, which is being processed in the Senate. Rocha met last Friday (2) with Guedes and said upon leaving that the expectation is to vote on the matter “as soon as possible”. “A broad tax reform, in our nomenclature, affects income, consumption and assets”, he highlights. “PEC 110 is sometimes criticized because it provides for a dual VAT, but for broad tax reform you cannot just change consumption, as is the proposal in PEC 45”, he argues.

“Snare drum”

Experts also criticize the forwarding of the income tax reform proposal at the drop of a hat. O presidente da Câmara, Arthur Lira (PP-AL), pretende colocar a proposta em votação diretamente no plenário da Casa, ou seja, sem que o texto seja devidamente analisado pelas comissões. “Votar direto no plenário, sem debate, é preocupante. A sociedade não vai ter tempo de reagir. O projeto é muito complexo, com 68 artigos, quatro a cinco dezenas de revogações com trechos com a redação bastante duvidosa que abre espaço para várias interpretações”, alerta Rachid.

André Perfeito, economista-chefe da Necton Investimentos, também demonstra preocupação se o projeto não for bem debatido no Congresso sobre os verdadeiros impactos de curto e de longo prazos em um momento em que o governo está cada vez mais fragilizado. “Não é da natureza da agenda liberal gerar incentivo apenas no curto prazo, e não haver uma preocupação maior com o crescimento sustentável”, afirma citando as críticas feitas pela Confederação Nacional da Indústria (CNI), que avalia que a proposta “vai na direção correta”, ao propor a redução do IRPJ-CSLL sobre o lucro das empresas, com a perda de arrecadação sendo compensada pela incidência de IRRF na distribuição de lucros e dividendos. However, the entity states that “the proposed rates increase taxation on income generated by productive investments”.

Na semana passada, o ministro Paulo Guedes sinalizou positivamente para algumas mudanças, como aumentar a redução do IRPJ adicional de 10% proposta no projeto, de 5,0 pontos percentuais divididos em 2,5 pontos em dois anos.

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