Tax reform and fiscal adjustment

Tax reform and fiscal adjustment

We are leaving behind a complex and absolutely outdated system, designed for an analog economy of the 1950s and which no longer interacts with the digital economy of the 21st century

By Eduardo Maneira
Partner of Maneira Advogados, professor of tax law at UFRJ; director of the Brazilian Association of Financial Law.

With the promulgation of EC 132/2023, the consumption tax reform is a reality that should and deserves to be celebrated, without losing sight of the numerous challenges that we will still face until its effective implementation. Regulation and the long transition period will require dedication, a lot of dialogue and consensus between the Executive, Legislative and taxpayers.

Critics of the tax reform say, among other things, that we will have the highest ICMS in the world, with a rate of 26.5%. There is nothing new about this because we already have the highest consumption taxation in the world: IPI (non-cumulative), ICMS (non-cumulative and single-phase), ISS (cumulative), PIS and COFINS (cumulative and non-cumulative) with different non-cumulative rules — when all the incidences are added together, they can easily exceed the rate of our dual ICMS, that is, the Tax on Goods and Services (IBS) and the Contribution on Goods and Services (CBS).

The important thing is that we are leaving behind a complex and absolutely outdated system, designed for an analogue economy of the 1950s and which no longer interacts with the digital economy of the 21st century. With the reform, we are bringing our consumption taxation model closer to that of practically all countries in the Western world.

In 2016, India introduced a Dual-VAT similar to ours. After its implementation, very positive social and economic impacts were observed, making it possible to state that the subsequent growth of its GDP was a reflection of the implementation of dual ICMS. A reduction in administration and compliance costs was also observed; reduction of overlapping incidences and reduction of tax benefits.

It is worth highlighting that in parallel with the task force on tax reform (now in the regulatory phase), the government and Congress' agenda must address another issue of extreme urgency for Brazil: the need to promote a fiscal adjustment of public accounts.

The federal government, pressured by such circumstances, has adopted measures to increase the tax burden in the short term, generating discomfort and negative reactions from the market, with for example: a) MP 1,227/2024, which created several restrictions on the enjoyment of fiscal benefits from federal taxes and compensations, leading the president of the Senate to return the aforementioned MP; b) the attempt to reinstate the payroll with MP 1202/2023, followed by the filing of ADI 7,633/DF, seeking the unconstitutionality of Law 14,783/2023, with the STF suspending the effectiveness of said law for 60 days so that an agreement can be promoted on the matter; c) restrictions on the payment of JCP by Law 14,783/23; d) changes to investment subsidy rules through Law 14,789/23.

Recent episodes of changes in tax legislation have created uncertainty in the economic environment and significant costs for Brazilian companies. Tax reform is crucial for the country's long-term development, because, as the Indian experience shows, the implementation of a system of full non-cumulative, less costly and more fair, directly reflects on the national GDP.

I hope that short-term tax collection measures that generate legal uncertainty cannot compromise the positive effects of the full implementation of the tax reform, which will make Brazil more competitive in attracting foreign investment.

*Eduardo is a partner at Maneira Advogados, professor of tax law at UFRJ; director of the Brazilian Association of Financial Law.

https://www.correiobraziliense.com.br/direito-e-justica/2024/08/6910346-visao-do-direito-reforma-tributaria-e-ajuste-fiscal.html