IS: sin and distrust tax

IS: tax of sin and distrust

Tax lawyers view the creation of the Selective Tax in the tax reform with reservations and believe that the new tax, in practice, will be used to increase the Union's revenue.

By Silvia Pimentel

Created by the tax reform to discourage the consumption of products harmful to health and the environment, the Selective Tax (IS), called the sin tax, in theory, has an extra-fiscal character, that is, it does not have the objective of increasing government revenue.

However, there is a fear that the tax, similar to the IOF (Financial Operations Tax), will be used for this purpose, in the assessment of tax lawyers.

According to Complementary Law 214/25, which regulates the reformulation of taxes on consumption, the new tax will apply to the production, extraction, sale or import of vehicles, vessels and aircraft, mineral coal, smoking products, alcoholic beverages, sugary drinks (such as soft drinks), iron ore, natural gas and oil.

The list of products on the IS radar is extensive. Therefore, the calibration of tax rates is considered essential so that the objective of discouraging the consumption of harmful goods is achieved.

In addition to the correct dosage of the aliquot, its modalities are also points of attention. The tax reform provides for two possibilities: specific rates (ad rem), related to the quantity or volume of the product, and ad valorem, related to the value of the good.

According to the text of LC 214, both modalities can be adopted in the same product, as in the case of cigarettes and alcoholic beverages. Collection of the new tax is scheduled to begin in 2027 and the rate values are defined in ordinary laws.

Ambiguity and misdirection

Júlio Cesar Soares, specialist in Tax Law at IBET, partner at Advocacia Dias de Souza, states that the creation of the tax raises structural doubts, both on a technical and political level.

He says that, technically,the IS was created with the intention of being an extra-fiscal tax, that is, aimed at inducing behaviors, such as discouraging smoking, excessive alcohol consumption or environmental pollution.

However, he states that caution is needed with what is known as “facade extra-taxation”. “The Brazilian history with selective taxes, such as IPI, IOF and CIDE, shows that the discourse of regulation often serves as a legitimizing veneer for purely fundraising purposes”, he warns.

In the tax expert's assessment, there is a concrete risk that the tax will be used to restore the Union's revenues, especially after the extinction of the IPI (Tax on Industrialized Products).

"The biggest risk is not in its creation, but in its trivialization and that it will be transformed into another cog in the tax collection machine, disguised as fiscal morality. In order for it to fulfill its constitutional role, it must be circumscribed, justified and monitored, otherwise it will become an instrument of tax injustice", he states.

Marcos Maia, partner at Maneira Advogados, has the same opinion. In his view, although covered in a discourse aimed at protecting health and the environment, the Selective Tax was conceived, and is being structured, as a collection instrument, with a direct impact on strategic sectors of the economy and in dissonance with the guiding principles of tax reform.

For the tax professional, the choice of the tax base, in certain cases, proves the deviation of purpose. The tax will apply, for example, to the extraction of mineral goods, even when intended for export, which goes against one of the central pillars of the tax reform, which is the exemption of exports to ensure the competitiveness of national products on the international market.

“The incidence of the tax on the input, and not on the final product consumed, is at odds with the logic underlying extra-fiscal taxes. If the intention were to discourage practices that are harmful to health and the environment, taxation should occur at the final stage of the chain and not at the initial stage of production”, he states.

Maia explains that one of the segments most impacted by the incidence of IS is the extraction of mineral goods. This is the case of the oil and natural gas (O&G) industry, which accounts for a significant portion of the Brazilian Gross Domestic Product (GDP).

“Taxation at this stage of the production chain harms Brazil's fiscal attractiveness in a highly competitive global environment, in which countries such as the United States, Mexico, Guyana and Norway compete for investments based not only on geological criteria, but, above all, on more favorable tax conditions”, he says.

The measure, he highlights, also affects producing states, such as Rio de Janeiro and Espírito Santo, whose revenue depends, to a large extent, on royalties and special participations linked to oil exploration.

The tax expert also draws attention to the lack of mechanisms to measure the regulatory effectiveness of the tax. According to him, to date there are no objective instruments or criteria that allow assessing whether the selective tax is fulfilling its supposed role of inducing more sustainable behaviors.

Simplification?

Salwa Nessrallah, lawyer at Evoinc, says that the creation of the selective tax goes against the government's promise of simplification with the tax reform.

“If the declared intention of the reform is to reduce the complexity of the tax system, creating a tax goes in exactly the opposite direction”, he states. She also believes that the new tax, in general, should not be used as a tool to induce consumer behavior.

In his assessment, if the objective is to change consumption patterns, the government needs to invest in more effective instruments to promote this change, and increasing the tax burden is not one of them.

The tax expert explains that, in the legal system, there are taxes with a specific destination — such as Cofins, which will be incorporated into CBS – and are intended to fund social security.

Tax, by nature, does not have this connection. “This means that IS collection can be directed to any purpose, which highlights the inconsistency of the argument that the tax will serve to discourage the consumption of products that are harmful to health or the environment”, he says.

For the lawyer, if the concern was, in fact, with the effects of consuming certain products, the most coherent path would be to create a linked contribution, with revenue destined to directly address the damage caused by these items.

https://dcomercio.com.br/publicacao/s/is-imposto-do-pecado-e-da-desconfianca