Nuances of tax reform

 

To point out the main points about the tax reform proposals is not a simple task. Currently, there are some bills in progress at the federal level that foresee, among other measures, the unification of the PIS and COFINS for the creation of a Contribution on Goods and Services, the CBS, along the lines of a Value Added Tax, the VAT.

This month, IPC Newsletter talked to the partner of Miguel Silva & Yamashita, professor Miguel Silva, on the subject. He points out the main changes and impacts of the Tax Reform on the daily life of companies and professionals. Check the interview below:

IPC Newsletter: How are the projects for tax reform currently proceeding? Is there consensus for a single proposal?

Miguel Silva: There are two important PECs (Proposals for Constitutional Amendment) in evidence moving through the National Congress: PEC 45/2019 drafted by Representative Baleia Rossi, with the contribution and technical support of the CCIF (Tax Citizenship Centre) and PEC 110/2019 drafted by Senator Davi Alcolumbre, based on the project of former Congressman Luiz Carlos Hauly.

PEC 45 represents a less impacting tax reform, although it is a relevant project, as it only establishes the unification of the so called indirect taxes (IPI, ICMS, ISS, PIS/PASEP and COFINS), not taking care of the so called direct taxes (Exs: IRPJ, CSLL, IPVA, IPTU), which also present neuralgias to be corrected, something that PEC 110 addresses.

In this context, the PEC 110 is more complete and encouraging, because it aims to reform the direct and indirect taxes and their distortions harmful to the country.

In order to speed up the approval process and debates, a Temporary Mixed Committee was created to consolidate the text of the Tax Constitutional Reform (Joint Act of the President of the Federal Senate and the President of the Chamber of Deputies No. 01/2020), with Senator Roberto Rocha as Chairman of the Committee and Deputy Aguinaldo Ribeiro as Rapporteur.

During 2020, the Joint Commission held several meetings, one of the last being the public hearing with the Special Secretary of the Federal Revenue of Brazil, the special advisor to the Minister of Economy, the representative of COMSEFAZ (National Committee of Secretaries of Finance, Finance, Revenue or Taxation of the States and Federal District), Bernard Appy of CCIF and former Congressman Hauly.

From the above, the National Congress did well to create a mixed committee, allowing us to conclude that we are moving towards a single proposal.

 

IPC: What is the latest information and updates on tax reform? And, what are the main ones, which at the very least should be appreciated and considered?

MS: The unified text has not yet been finalized and presented to the public. It is well known that, besides PECs 45 and 110, the federal executive has already presented to the National Congress, as "part" of the tax reform, the demilinguished Bill no. 3.887/2020, which intends to create the restricted Social Contribution on Transactions with Goods and Services (CBS) replacing only the current collection of PIS/Pasep and COFINS, and the Simplifica. Already, which has several supporters, among them entities that congregate tax agents of the states and municipalities, and this project was also supported by the deceased senator Major Olímpio.

I must also mention the important role played by the Instituto Atlântico in contributing to the Agglutinating Proposal to PEC 110, which was sent to the members of the Mixed Committee of the National Congress and to the Ministry of Finance.

Something that we have been spreading especially, and PECs 45 and 110 are in the right direction, unlike the proposal of the federal executive, is that the great distortions in the constitutional tax system reside in the so-called indirect taxes, which elect as taxable event the revenue (billing) and not the profit. A tax reform that does not combat and annihilate the anomalies of the ICMS and ISS, with their 27 state regulations and more than 5,500 municipal regulations, with abundant and sandy rules, accompanied by deleterious tax wars, had better not come, as otherwise it will be just another tax tug-of-war.

Due to the significance of the matter, there are 27 ICMS regulations, which are not uniform among themselves, and more than 5,500 ISS regulations, all of which regulate, in their own way, the taxable event, tax basis, rate, forms of assessment and collection, and other matters involving the principal and accessory obligations.

We need to unify the IPI/ICMS/ISS/PIS/COFINS in a national tax, as already stated in the PECs 45 and 110 under the name of IBS (Tax on Goods and Services, national tax), corresponding to the VAT (Value Added Tax) adopted for decades in more than 120 countries, representing more than 70% of the world population, that is, once again we are against the world (especially the developed countries).

Since we will not achieve a structural reform with a rapid reduction in the tax burden, all that remains is to adopt an effective simplifying remodelling for companies and professionals, with an automatic reduction in the high administrative and technological costs of determining and declaring taxes in the country.

 

IPC: What are the cautions or steps, which companies should take, taking into account the tax reform?

MS: A significant point of attention of the companies and professionals involved should be the monitoring of the tax reform, especially with regard to the institution of our VAT (in the texts of PECs 45 and 110 with the name of IBS - Tax on Goods and Services), in terms of its economic impact on business development, in the most diverse segments, as well as for its new form of calculation (the IBS will be due at destination) and accounting. Certainly, the transition phase to the new tax system will be very challenging.

Many countries have already successfully adopted VAT for many years, Brazil is lagging far behind, not only in changing the tax pattern, but also in much needed tax simplification, both adopted in the countries with which we compete.

 

IPC: What are the main aspects and challenges faced by tax areas in the face of new technological scenarios?

MS: In relation to the new technological scenarios, we have as a backdrop:

(a) an agile and efficient global banking system;

(b) the undoubted relocation of company headquarters to improve tax territoriality; and

(c) the effluent innovations of artificial intelligence.

Hence we have the significant advances in e-commerce with its large scale, national and international, in the most diverse economic segments, with the pandemic contributing to the acceleration of this irreversible process. In this context, from the tax point of view, the local challenge will be the alleged institution of a new tax: the digital tax, designed and desired by the Ministry of Economy, which has already signalled interest for its creation, although it is not included in the PECs in progress in the National Congress. At the international level, we have the movements of governments to hinder, in the legal or economic orbit, the headquarters of multinationals in tax havens or in regions with favored taxation.

 

IPC: In anticipation of tax reform, should organisations already take some action on their tax and fiscal organisation?

MS: Yes, it is prudent that companies, especially those that prepare annual or multi-year budgets, or that are designing future implantation of business units or the launching of new products or services, include in their strategic planning the impact signalled by the eventual new tax scenario.

Considering that there will be no reduction in the tax burden with the approval of the tax reform, in any scenario (PEC 45 or PEC 110 - unified or not), I warn: some segments, such as, for example, the provision of services and the leasing of goods, will have a greater economic impact with the proposal of the new tax system (understand, they will pay more taxes in relation to the other segments, although in the macroeconomic context there should be no increase in the tax burden).

 

IPC: In that sense, what will be the challenges to entrepreneurs?

MS: The Brazilian tax burden is explicitly high, so if there is tax reform, one should monitor the proposals according to the company's segment and the pleas of the entities representing the sectors.

 

IPC: With the end of the pandemic, or control of it, will tax reform be considered a priority of the government? What is the future of the country post-pandemic scenario?

MS: In principle, yes, I think that in the second semester of this year, in the National Congress, the debates on Tax Reform should evolve and gain definitive contours, because if this does not happen, the issue will lose strength and will tend to be left for the next legislature.

The future of the country after the pandemic will depend largely on the sense of urgency of the legislative (a Constitutional Amendment requires approval, with a qualified quorum, by the House of Representatives and the Federal Senate) and we peremptorily need two worthy reforms: tax and administrative, so that the Brazilian economy resumes the path of solid development, towards a more vigorous GDP for the good of all.

 

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