What are Lula’s plans for tax reform?

The tax reforms on consumption and income, which were not approved by Congress during the Jair Bolsonaro (PL) government, are among the main proposals that can be voted on at the beginning of the new Luiz Inácio Lula da Silva (PT) government. in 2023.

The main texts in progress refer to proposals that have been discussed for at least 15 years, that is, from the previous PT governments, through the current administration.

The unification of the main taxes on consumption, for example, is the subject of two proposals by the Legislature and a project presented by the current government — neither of which has been voted on yet. In their main points, the texts refer to a project elaborated about 15 years ago, still in the second Lula government.

The idea was also defended in the electoral campaign by the defeated candidates for the presidency Ciro Gomes (PDT) and Simone Tebet (MDB) and is mentioned in the government program of the winning ticket Lula/Alckmin, which talks about “simplifying and reducing consumption taxation”. .

The PT also defended in the campaign changes in the Income Tax such as the correction of the table, taxation of profits and dividends and taxation of the richest. Two of these themes are also part of a project by the Bolsonaro government that was approved by the Chamber, but stopped in the Senate.

Consumption taxation

The House proposal, PEC 45, was presented in 2019 by deputy Baleia Rossi (MDB), and is based on a project by economist Bernard Appy, who was number 2 in the Ministry of Finance from 2003 to 2007 (in the Lula administrations). ) and is cited as one of the economists who can integrate the Lula government 3.

It provides for the replacement of five taxes (the federal PIS, Cofins and IPI, the state ICMS and the municipal ISS) with a tax on goods and services (IBS), with centralized collection and shared management, and a selective tax on cigarettes and beverages. .

The latest version of the text is the report by Deputy Aguinaldo Ribeiro (PP-PB), which also provides for replacing the exemption of the basic food basket with tax returns for lower-income families — a model similar to that adopted in Rio Grande do Sul.

The rate would be the same for all goods and services, which means putting more burden on people with higher incomes. It also wipes out most of the tax benefits.

The text has broad support from the industrial and banking sector, but faces resistance from service companies (which would be taxed more) and from large cities, which would lose full autonomy over the ISS (municipal tax on services). It will also be necessary to reach consensus among the governors, who will have to give up the granting of tax benefits — taxation will be done at the destination and no longer at the place where the company is.

A similar version of this proposal is the Senate’s PEC 110, whose current version is a report by Senator Roberto Rocha (PSDB-MA). One of the main differences is the possibility of having a federal IBS and others for states and municipalities.

The change was made to approximate the proposal of the Ministry of Economy’s project to merge PIS/Cofins, a topic that has been under discussion at the Federal Revenue since the Dilma Rousseff government (2011-2016).

Income tax

In his non-detailed proposal for a “solidarity, fair and sustainable tax reform” and during the campaign, the president-elect also defended the correction of the Income Tax table, with a high exemption range from R$ 1,903.98 to R$ 5,000 , and taxation of profits and dividends.

In the current administration, the Chamber even approved the project of the Ministry of Economy that provided for exemption of up to R$ 2,500, correction of other bands and taxation of profits, but exempting companies from Simples and Presumed Profit. There would also be a cut in the IRPJ (Corporate Income Tax) base rate from 15% to 8%.

The final text displeased most of the productive sector and its processing did not go through the Senate.

Proposals from the Lula/Alckmin government program

• Solidarity, fair and sustainable tax reform
• Simplify and reduce consumption taxation
• Ensuring tax progressivity (the rich will pay more)
• Unburden products with higher added value, embedded technology and ecologically sustainable
• Combating evasion

Source: Guidelines for Brazil’s Reconstruction and Transformation Program – Lula/Alckmin 2023-2026

Most advanced proposals in Congress

1) PEC 45 – report by deputy Aguinaldo Ribeiro

• Replaces five taxes (PIS, Cofins, IPI, ICMS and ISS) with a Goods and Services Tax and a Selective Tax on cigarettes and alcoholic beverages
• Six-year transition in two phases, one federal and one with ICMS and ISS
• Replaces the exemption of the basic food basket by the tax return for lower-income families

2) PEC 110 – Senator Roberto Rocha report

• Creation of CBS (Contribution on Goods and Services) with the merger of PIS and Cofins
• Creation of the IBS (Goods and Services Tax), with the merger of ICMS and ISS
• Replaces IPI with a selective tax on items harmful to health and the environment
• Creation of the Regional Development Fund, supplied with resources from the IBS
• Tax refund for low-income families

3) PL 3887/2020 – proposal by the Ministry of Economy

• Creation of CBS (Contribution on Goods and Services) with the merger of PIS and Cofins
• Current rule of exemption from the basic food basket maintained

4) PL 2337/2021 – text approved by the House

• IRPF exemption in the range up to R$ 2,500 and average correction of 13% in the other ranges
• Maximum simplified discount of BRL 10,563.60 (current limit is BRL 16,754.34)
• Taxation of dividends, with exemption for Simples and presumed profit
• IRPJ base rate cut from 15% to 8%
• CSLL cut by up to 1 percentage point
• End of JCP (Interest on Equity)

Sources: Chamber of Deputies and Federal Senate

Proposal by the Group of Six (Bernard Appy and others)

1) Taxation of consumption: under the terms of PECs 45 and 110, pending in Congress

• Replacement of five taxes (PIS, Cofins, IPI, ICMS and ISS) for a value added tax (VAT), with centralized collection and shared management (PEC 45)
• Possibility of having a federal VAT and others for states and municipalities (PEC 110)
• Replace the basic food basket exemption with tax returns for lower-income families

2) Taxation of labor income

• Update of the IRPF table plus annual correction for inflation
• Additional rate for higher rents
• Limitation of tax benefits
• Reduction of the employer contribution in the portion of the remuneration above the INSS ceiling

3) Taxation of capital

• Reduction of the corporate profit tax rate and change in the calculation basis
• Taxation of dividends and other income through a progressive table

4) Taxation of financial investments

• Eliminates exemption for some applications (LCI, LCA, CRI, CRA and real estate fund)

5) Simplified regimes (Assumed and Simple Profit)

• Reformulation to correct distortions that hinder the growth of small companies, discourage “pejotization” and low taxation of high income
• Small from Simples must pay less tax; High-income PCs, plus

6) Property taxes

• Complementary law on inheritances and donations abroad
• IPVA for ships and aircraft
• Review of the ITR (rural land tax)

Source: Contributions to a Democratic and Progressive Government (August/2022)