Brazilian VAT (in 2033)

Folha de S.Paulo published an article written by Dr. Eduardo Maneira, founding partner of Maneira Advogados, which analyzes the text of the tax reform approved by the Senate.

Brazilian VAT (in 2033)

There will be a long period of transition under the coexistence of two systems

Eduardo Maneira
Professor of tax law at UFRJ, is former president of the OAB Tax Law Commission and coordinator of Tax Law at ESA Nacional

Anyway, after 30 years of debates, it was approved by the Senado, in two shifts, a reform tax: PEC 45/2019, which returns to the Chamber so that specific changes can be assessed. In any case, there is a legitimate expectation that, later this year, we will have the approval of a tax system that will bring Brazil closer to the Western world in terms of consumption taxation.

The current system that is being reformed is complex, outdated and a true factory of litigation and legal uncertainty, based on an analog world in which the concept of merchandise, for example, is linked to the idea of a marketable corporeal good.

Brazil taxes consumption in a sliced manner. Municipalities (more than 5,500) require the ISS, the states the ICMS and the Union the IPI, in addition to PIS and Cofins. The result of this is an unprecedented excess in the world of municipal, state and federal legislation, in addition to ancillary obligations that consume hundreds of hours per year for companies' tax departments, administrative and judicial disputes that run into the trillions and an inevitable conflict between taxing entities.

The approved text eliminates five taxes (IPI, PIS, Cofins, ICMS and ISS) and creates a dual VAT (Value Added Tax) — in the absolute majority of countries the VAT is single — to meet the characteristics of our federalism: a) a federal one, which is the CBS (Contribution on Goods and Services); and b) one shared between states and municipalities, called IBS (Goods and Services Tax). It also authorizes the Union to create the Selective Tax (IS) on goods and services that are harmful to health and the environment. In other words, we are exchanging five for three — which isn't much in terms of quantity, but which could be a big step in quality.

The new consumption taxation will have the following characteristics: a) broader base, avoiding the current conflict of competences between federative entities; b) collection at destination — which practically eliminates tax wars between states; c) the credit will be financial, strengthening non-cumulative nature; d) end of tax benefit/waiver policies; e) external charging — unlike today, where the tax value is embedded in the value of the merchandise (which will provide more transparency); and f) smaller variety of tax rates, with the exceptions constitutionally provided for.

An IBS management committee will be established, made up of 27 members from the states and 27 from the municipalities and Federal District, which will handle the administrative management of the new tax.

There will be a long period of transition — which will lead to the coexistence of the two systems until 2032, and a lot of material has been sent to future complementary law. So, nothing new will happen in 2024 and 2025, other than the regulation by complementary law of a system that will begin to be implemented in 2026.

The new model will not be as simple as imagined. Furthermore, litigation will not magically end. In any case, the new system will be much better and more rational than the current one. We will have, in 2033, a Brazilian-style VAT, but a VAT. It's worth celebrating.

https://www1.folha.uol.com.br/opiniao/2023/12/iva-a-brasileira-em-2033.shtml