Understand how the government intends to increase tax collection

Report from Correio Braziliense addressed the new fiscal framework announced by the government and the Ministry of Finance's plans to increase tax collection. Dr. Marcos Correia Piqueira Maia, partner in the tax area at Maneira Advogados, was interviewed to comment on the matter.

Understand how the government intends to increase tax collection

Haddad's bets to cover pending issues in the fiscal framework, the government must initially present three measures to increase revenue and make the goals of the new fiscal rule viable

Rafaela Gonçalves

(photo credit: Washington Costa/MF)

Faced with the distrust of economic agents regarding the sustainability of the new fiscal framework and the government's ability to close its accounts, the Minister of Finance, Fernando Haddad, has been betting on a package of measures to “correct tax distortions”. The ministry's expectation is to raise between R$110 billion and R$150 billion with additional measures to meet the goals established for the primary result. Haddad participates in the ministerial meeting led by President Luiz Inácio Lula da Silva (PT), at Palácio do Planalto, this Monday (10/4), at 10am, to mark 100 days in office. The government is expected to make a series of announcements during the meeting.

To close the account, the Minister of Finance stated that the government must initially present three measures, in the coming days, with the tax review of sectors that are currently exempt, such as electronic betting and e-commerce based abroad, in addition to putting an end to company funding subsidies.

According to calculations by the chief economist at the Warren Rena brokerage, Felipe Salto, an additional R$100 billion in revenue will be needed to bring the fiscal deficit to zero in 2024, as predicted by the framework. The new rule also establishes real growth in expenses in a range of 0.6% to 2.5%, depending on the behavior of revenues in the previous year.

Last Thursday (7) the minister said that around 500 companies with “super profits”, which use tricks to avoid paying taxes, are already in the government's sights. These companies have tax incentives granted by states, via ICMS (Tax on Circulation of Goods and Services), and will be prohibited from deducting this credit from the federal tax calculation base, such as the Social Contribution on Net Profit (CSLL), in cases of funding activities. The estimated impact is R$80 billion to R$90 billion in revenue.

According to analysts, the attempt to increase spending capacity for the subsequent year, which is conditional on increased revenue, indicates that there will be a strong incentive for the government to seek sources of extraordinary revenue — which the government guarantees will not imply a general increase in the tax burden.

According to the professor of tax law at Fundação Getulio Vargas (FGV), Gabriel Quintanilha, the subject had already been widely discussed in the legal field. "When the company receives the ICMS tax benefit, it has two ways of accounting for it, as a subsidy for investment or as a subsidy for funding. In the subsidy for investment there is a return for the activity, while in the subsection for funding, the company records the amount to pay its own expenses, this should be prohibited", he explained, stressing that the benefit must be maintained in cases of investments.

The intention to tax foreign online sales platforms, in turn, has caused a lot of buzz on social media, with consumers fearing the increase in prices of products that have become accessible to a portion of the population through these sites. So far, what is only known is that e-commerces based abroad that circumvent Federal Revenue rules and do not pay due taxes should be taxed, a move that could guarantee additional revenue of between R$7 billion and R$8 billion.

In conversation with journalists last week, Haddad signaled that it intends to tax especially Chinese internet shopping sites, which wrongly sell from individual to individual. According to tax experts, e-commerce platforms that allow the purchase of products located abroad, such as Shein, Shopee, Ali Express and even eBay and Mercado Livre can be included in this list.

Retail pressure

According to Salvador Cândido Brandão Jr, doctor in tax law, this taxation is the result of a long demand from dissatisfied businesspeople, who consider competition to be unfair. "The intention presented so far is to tax digital platforms, most of which are located in Asia, due to a large volume of purchases by Brazilian consumers, attracted by the low price of products and the difficulty of inspection or tax exemption. This has created an imbalance in competition with the national market. Taxation has been requested by the retail sector itself", stated the lawyer, who recalled that the movement had already been articulated by the predecessor government.

The creation of a tribute is still under discussion. Furthermore, foreign companies are not completely exempt from taxes in Brazil. Currently, individual senders can send orders of up to US$50 without charging fees to end consumers residing in the country. Above this value, 60% import taxes are charged.

The minister even called websites that circumvent taxes “smuggling”, however, Brandão Jr warned that it is actually the practice of embezzlement. "This is not smuggling. This is a mistake. It would be smuggling if the products of foreign origin supplied were prohibited in Brazil, or if their import were prohibited or if they depended on registration or authorization from a public body, despite the fact that they could be commercialized internally. There may even be some cases of smuggling, but the vast majority are embezzlement, a crime related to the import of goods without paying the taxes due upon entry", he stated.

The tax expert believes that there will be little impasse in the implementation of taxation, as it is a request from the Brazilian retail sector itself. “What must be clear is that this is not about increasing taxes, since there is no taxation on these products, but rather applying the same taxes already applied to Brazilian companies”, he highlighted.

According to him, a better solution would be to reduce bureaucracy in business activity and simplify taxation on consumption so that Brazilian companies become more competitive. "The reform of consumption taxation, which the government intends to implement, may be successful in this aspect. But, in fact, the same tax burden applied to national products must be applied to foreign products," he added.

Betting Sites

In the case of taxation of sports betting sites, the discussion seems to be more evolved. The “betting” market, which moves billions and is currently exempt from any type of taxation on Brazilian soil. The Minister of Finance has already been maintaining a dialogue with the sector, which is in favor of regulation, and signaled that taxation could be implemented through a provisional measure later this month. The expectation is that taxation will bring around R$12 billion to R$15 billion per year to the public coffers.

For tax lawyer Marcos Correia Piqueira Maia, partner at Maneira Advogados, regulation must provide security, transparency and predictability for both betting companies and bettors. “Evidently, by publishing clear rules that protect all parties involved and allow for supervision, new players, national and international, may be interested in investing in the country, generating more resources and, logically, more revenue for the public coffers”, he said.

The regulation, according to the lawyer, will make these companies, currently based abroad, consolidate themselves in the Brazilian market. "The government intends to create the necessary instruments to demand the payment of taxes from all companies in the sector, regardless of whether they are Brazilian or foreign. The tax burden must be borne by all agents, in order to avoid imbalances", he stated.

The taxation was welcomed by the gaming sector, which has been trying for decades to legalize and expand the private betting market in the country. Taxation is expected to be applied to companies' gross profits and licenses for them to operate. Players would also have their winnings taxed in Income Tax, but the ministry has not decided what the exemption range will be nor the percentage that will be charged on the prizes. A counterpoint could be the percentage of the bettors' prize which, according to experts, could discourage the sector.

Resistance in Congress

According to Haddad, only the taxation of e-commerces can be done through a movement by the Federal Revenue Service. The rest will depend on the sending of bills or provisional measures to the Legislative Branch. Economist Murilo Viana, a specialist in public accounts, recalled that all these tax measures, in a certain way, had already been discussed at a certain point, but there was never a consensus for their implementation.

The attempt to tax exclusive funds, for example, was included in a provisional measure issued by the Temer government, but met with strong resistance in Congress and lost its validity, which demonstrates the size of the challenge that the Lula government will face.

"It is worth noting that business lobbies are super strong in the National Congress and that the adoption of unpopular economic measures tends to generate significant resistance from congressmen. Added to these considerations is the fact that the government does not have a broad base in the federal legislature and may encounter resistance especially from the president of the Chamber, Arthur Lira", highlighted Viana, recognizing that any increase in the tax burden is unpopular, at least for the portion that is suffering the consequences direct.

“The changes announced now, in turn, create legal uncertainty for the investment made, making the investment more expensive called ‘Custo Brasil’. Not least, it is of fundamental importance that bills, especially those with great economic potential, undergo more rigorous screening of fiscal and social impact analysis, before being approved by the legislature”, added the economist.

https://www.correiobraziliense.com.br/economia/2023/04/5086220-entenda-como-o-governo-pretende-aumentar-a-arrecadacao-de-impostos.html