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Tax Reform promises simplification and an end to the tax war in the country
Tax Reform promises simplification and an end to the tax war in the country
During the debate on new rules, the expected advances were celebrated. An alert was also made regarding the urgency of adapting companies
By Firjan
After decades of discussion, the Tax Reform was approved at the end of last year with the expectation of simplifying the tax system in the country and ending the so-called tax war. Considered one of the most significant transformations for the Brazilian economy, it will come into force in 2027. The new model foresees the replacement of taxes such as ICMS, ISS, PIS, Cofins and IPI with the Dual Value Added Tax (VAT), based on two taxes: the Contribution on Goods and Services (CBS), a federal taxation, and the Tax on Goods and Services (IBS), a state and municipal charge.
The implementation of the new system, the configuration of the main tax and the impacts on different agents, in addition to the opportunities and challenges of the new regime and the industrial competitiveness of Brazil post-reform, are questions raised by the different impacted audiences. Debating these points was the proposal of the event “Tax Reform Challenges: how to prepare for the new rules”, presented by the Federation of Industries of the State of Rio de Janeiro (Firjan) and held by Editora Globo, at Firjan headquarters, last Monday, bringing together experts, government representatives and businesspeople.
Luiz Césio Caetano, president of Firjan, opened the meeting by celebrating the changes that the reform proposes for transparency, neutrality and equality in the different sectors of the economy, reestablishing the competitiveness of the industry.
— The Tax on Goods and Services (IBS), which is now charged in the destination state, becomes an antidote to the fiscal war that, for years on end, guided investment decisions in this country — he pointed out.
The IBS, which is now charged in the destination state, becomes an antidote to the fiscal war that, for years on end, guided investment decisions in this country”
— Luiz Césio Caetano, president of Firjan
Next, Bernard Appy, extraordinary secretary for Tax Reform at the Ministry of Finance, gave an overview of the reform and opened a debate on how companies should prepare to change the way they operate.
— The reform is necessary because, in Brazil, we have reached a level of distortion in the system of taxation for the production, commercialization and consumption of goods and services that is absolutely monumental. The effect of our current system, due to numerous differences in rules, fiscal war, fragmentation of incidence between goods and services, has caused us to reach a degree of distortion that has a very negative effect on the growth potential of the Brazilian economy — he detailed.
Urgency in adaptation
Appy explained that the objective of the reform is to correct these distortions, migrating the system to international standards. He guaranteed that there will be no double taxation and warned of the urgency for companies to begin adapting as soon as possible, since from 2026 onwards, a breakdown of the Tax on Goods and Services (IBS) and the Contribution on Goods and Services (CBS) will be required in tax documentation, even if collection only begins in 2027 and organizations have next year to access the system.
— Those who depend solely on tax benefits to be competitive may not do well. But, for those who are efficient, it will be positive – analyzed Appy, reinforcing that it is important for companies to start thinking about how the new tax system will affect their business model and contracts. He also said that the reform will require price redefinition and renegotiation with the customer, for example.
The first panel, “Opportunities and challenges of the new tax regime”, mediated by journalist Leila Sterenberg, included the participation of Bernard Appy, extraordinary secretary for Tax Reform at the Ministry of Finance; Eduardo Maneira, professor of Tax Law at UFRJ; Robson Lima, national manager of the Strategic Tax Reform Project at the Federal Data Processing Service (Serpro); and Luiz Dias de Alencar Neto, general coordinator of the National Meeting of State Tax Coordinators and Administrators (Encat). The table expanded the discussion on what will change for the business community following the reform.
Maneira highlighted that the current Brazilian system has the highest consumption tax in the world, the most complex and the most litigious. With simplification, companies can expect a reduction in administrative litigation.
— The reform has a guide which is the principle of neutrality. What will guide the decision to invest in the country will no longer be the tax burden. The replacement of ICMS and ISS by IBS is a turning point. We are talking about a new tax, with much simpler logic — he assessed.
To enable a system that is simpler for taxpayers and allows for efficient credit appropriation and reimbursement, a shared management model was created that will accompany the reform. A management committee will be responsible for collecting and clearing debts and credits from the Goods and Services Tax (IBS), carrying out the transition in the distribution of revenue to states and municipalities. Luiz Dias de Alencar Neto stated that the model will facilitate the work of businesspeople.
— The committee will centralize all collections. Instead of the taxpayer paying to several federative entities, there will be a collection in a single location. Another important point is the creation of single legislation. Today, how many laws do we have across the country? The company is lost. There will be a big simplification — he said.
The reduction of bureaucracy should facilitate taxpayers' obligations. A change that should impact business operations is the creation of a single reform portal, which will be the single contact for taxpayers, the tax administration and citizens to monitor the transparency of the reform.
— The taxpayer's relationship with the tax authorities will change, the businessman will have more predictability, not being left with uncertainty about the business. He will have access to this environment with all the instant information and the certainty of where to interact with the tax authorities — concluded Robson Lima.
New scenario impacts the entire business environment
From left to right: Fábio Giambiagi, economist and associate researcher at FGV; Luiz Césio Caetano, president of Firjan; Leila Sterenberg, journalist; and Pedro Paulo (PSD-RJ), Federal Deputy for Rio de Janeiro — Photo: Marco Sobral/GLab
The transformations brought about by the Tax Reform, which will impact the country's entire business environment, set the tone for the second panel, “Post-reform industrial competitiveness”, which featured the participation of Luiz Césio Caetano, president of Firjan; Pedro Paulo (PSD-RJ), federal deputy; and Fábio Giambiagi, economist and associated researcher at Fundação Getulio Vargas (FGV).
Caetano highlighted that the Tax Reform and the end of the tax war represent a paradigm shift for the business environment in Brazil.
– For decades, states competed for investments based on tax incentives. With the new model, the logic of this dispute changes completely. In this new scenario, investors begin to evaluate much more carefully the fundamentals that make a state truly competitive – said Caetano, highlighting that the business environment, human capital, state efficiency and infrastructure are aspects that make a difference when what is at stake is no longer the tax rate.
For decades, states competed for investments based on tax incentives. With the new model, the logic of this dispute changes completely.
In this new scenario, investors begin to evaluate much more carefully the fundamentals that make a state truly competitive”
— Luiz Césio Caetano, president of Firjan
He also defended that a decisive point for the productive sector is public security. Another strategic axis highlighted by the president of Firjan is human capital. For him, Brazil and the state of Rio will only be competitive if they train a workforce capable of serving the new economy.
— Completing high school often does not result in inclusion in higher education, nor does it qualify the young person for a productive role, which could even make it possible to continue studying – said Caetano.
The president of Firjan shed light on the importance of reforms that enable the sustainable growth of the economy, make the allocation of public resources more efficient and allow the country to be competitive.
— A recent study by Firjan shows that half of Brazilian city halls allocate more than 50% of their budget to personnel spending. Furthermore, almost half of the country's municipalities have a critical level of investment, allocating only 3% of revenue to these expenses. Without structural reforms, our country's competitiveness and development will be increasingly compromised – he pointed out.
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Other reforms
Federal deputy Pedro Paulo (PSD-RJ), member of the Finance and Taxation Committee of the Chamber of Deputies, recalled that Complementary Law Project (PLP) 108/2024 is under discussion, which provides for the creation of the Goods and Services Tax Management Committee. The body, among other duties, will be responsible for distributing Union resources to states and municipalities.
— There is an important discussion about this balance between the participation of large, medium and small municipalities — explained the deputy, regarding the delay in voting on the PL.
Designated as coordinator of the administrative reform working group, also under debate, Pedro Paulo explained that it has no impact on the balance of the country's budget.
— Administrative reform does not produce, in the short term, what we need to do now, which is a fiscal adjustment. It is like a microeconomic reform in the functioning of the state machine. It is like a regulatory framework for the functioning of the state in public services. It will produce, in the long term, an improvement in the economy when you rationalize expenses, for example — he detailed.
Administrative reform does not produce, in the short term, what we need to do now, which is a fiscal adjustment. It is like a microeconomic reform in the functioning of the state machine. It’s like a regulatory framework for the functioning of the state in public services”
— Pedro Paulo (PSD-RJ), federal deputy and member of the Finance and Taxation Committee of the Chamber of Deputies
Fábio Giambiagi highlighted past and current government spending, mainly in relation to the payment of court orders and the income transfer program, and took the opportunity to criticize the Income Tax Reform, such as income tax exemption for those who earn up to R$5,000 and the taxation of citizens with income above R$50,000:
— We now have the highest average public deficit since 1994. Betting on an IR Reform that exempts a substantial part of those who currently pay from payment seems to me to be a mistake for several reasons.
First, loss is certain and compensation is uncertain. Secondly, because we would have a level of income tax exemption, compared to the average income of the population, which would be one of the highest in the world. And thirdly, because it conveys to the population the idea that people have the right not to pay taxes and receive public services — he argued.
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