Soda, beer and betting will have Selective Tax; weapons are left out

WHAT HAPPENED

The Working Group that discusses tax reform in the Chamber of Deputies released the preliminary report on the proposal. In the text, parliamentarians define the rules for the Selective Tax, to be charged on the production, extraction, commercialization or import of certain categories of goods and services.

Taxation will be added to the value of goods and services that are harmful to health or the environment. Add to the list:

vehicles;
vessels and aircraft;
smoking products;
alcoholic drinks;
sugary drinks;
extracted mineral goods;
prediction contests (bets and lotteries, physical or virtual) and fantasy games.

Products linked to tobacco, alcoholic beverages and soft drinks will be charged in primary packaging – that is, that intended for the final consumer. Thus, the tax only falls on items in the categories intended for the final consumer and is not duplicated.

The Selective Tax will be charged once on the production chain. The manufacturer, on the first sale, and the importer, when the good enters national territory, will be charged the new tax. In the case of cigarettes, the reference value for charging will be the retail sales price.

The Selective Tax will be levied once on the good or service, and any type of use of tax credits with previous operations or generation of credits for subsequent operations is prohibited.
Tax reform preliminary report

The tax rate on the price of vehicles will be charged differently. According to the proposal, the category rates will be defined in relation to each model. To do this, the vehicle's power, energy efficiency, material recyclability, pollutant emissions, manufacturing process and vehicle category will be considered.

Taxation on mineral goods, such as oil, will be restricted to 1%. The limit considers the standards defined by the Federal Constitution. For Donovan Lessa, partner at Maneira Advogados and member of ABDF (Brazilian Association of Financial Law), the choice to tax mineral goods, especially in exports, shows a fundraising interest in the text.

“Part of the states saw the Selective Tax as an opportunity to tax the export of oil and ore, which did not happen before due to the ICMS immunity on exports.”
Donovan Lessa, member of ABDF

RATES STILL UNDEFINED

Impact on Brazilians' pockets remains uncertain. As the rates should only be introduced in later stages of the processing, it is not yet possible to determine the effect of the Selective Tax on the final consumer. “The rate will only be defined in the next phase of the reform, when the ordinary law is enacted”, explains Lessa. “Considering its function of reducing consumption, there may be high rates with a relevant impact on prices”, he predicts.

“In principle, the rates of this tax will be different for each product or service, depending on the greater or lesser potential for harm to health or the environment.”
Donovan Lessa, member of ABDF

Charge will be extraordinary. For goods and services included in the Selective Tax, the rate will be added to the IBS (Tax on Goods and Services), which will be charged in place of the state ICMS and the municipal ISS, and to the CBS (Contribution on Goods and Services), which will replace PIS and Cofins.

“In our current system, IPI and ICMS are subject to the principle of selectivity, which authorizes taxable entities to increase the tax, according to the essentiality of the product.”
Denis Passerotti, member of the OAB-SP Infrastructure Committee

The administration and supervision of the tax rates will be the responsibility of the Federal Revenue. For the calculation basis, the deputies' report defines that the tax calculation basis will be the full amount charged in the operation. There are also additions arising from adjustments to the operation, interest, fines, freight and discounts granted.

WEAPONS

The text excludes extra taxation for firearms and ammunition. The preliminary report presented in the Chamber of Deputies left out weapons-related products. The items had been included in the Selective Tax list in an opinion approved by the Federal Senate.

The issue may still return to the text. During the next stages of processing the tax reform, the addition of the Selective Tax for weapons and ammunition may return to the proposal through amendments presented at the time of voting in plenary.

EXEMPT

Exports and public transport services are exempt. According to the determination, the Collective Tax does not apply to sales abroad nor to public transport of passengers by road and subway of an urban, semi-urban and metropolitan nature.

Goods and services with a 60% reduction in the standard IBS and CBS rate are also free from additional charges. This item includes proteins and dairy compounds. The exemptions also include electricity and telecommunications operations.