Congress resumes works focused on tax reform and new fiscal framework

The Chamber of Deputies and the Senate resume activities this Wednesday (1st) with the challenge of moving forward on issues that are difficult to reach consensus on, but considered a priority by the government of Luiz Inácio Lula da Silva (PT), such as tax reform and the fiscal framework that will replace the spending cap.

In addition to these matters that will require more intense negotiations, parliamentarians will have to analyze issues such as the correction of the Income Tax table —which may be included in the tax reform proposal—, the text that updates the Simples ceiling and possible regulation of apps.

The main effort of the government and Congress in this beginning of the legislature will be focused on changes in the tax system. The articulation to approve the reform has been taking place even before the formal start of work in the Legislative. In Davos, where he participated in the World Economic Forum, Minister Fernando Haddad (Finance) defended that the tax changes be voted on in the first semester.

Haddad already had a meeting with the mayor, Arthur Lira (PP-AL), to discuss the reform. Even before that, he gave an indication of what would be the text prioritized by the government, by choosing economist Bernard Appy as special secretary for tax reform, mentor of PEC (proposed amendment to the Constitution) 45, prepared by deputy Baleia Rossi (MDB- SP).

The text, which proposes the unification of consumption taxes into a national VAT (Value Added Tax), has been widely discussed since 2019, when it was presented. The debate took place in parallel with a Senate PEC that creates a dual VAT rate (with a rate for the federal government and another for states and municipalities).

Congress even created a joint commission (of deputies and senators) to integrate the two proposals, but the initiative did not prosper. Now, the intention would be to concentrate efforts on PEC 45.

“The big subject that has been talked about for so many years in the country is tax reform. Whoever generates jobs understands that this is absolutely necessary, and simplifying tax collection in the country is a need that has already passed the point”, says the Deputy Marco Bertaiolli (PSD-SP).

Privately, however, parliamentarians and the government itself assess that the text should be dehydrated, amid pressure from business sectors.

The discussion of the tax reform should take place together with the debate on the new fiscal anchor that will replace the expenditure ceiling — a mechanism that limits expenditure growth to the previous year’s inflation. Haddad has already signaled that he intends to present the framework no later than April. Vice President Geraldo Alckmin (PSB) argues that the new rule should take into account the debt curve and the primary result.

“If I were heard by the government, I would prioritize tax reform and the issue of the fiscal anchor. Everyone knows that the ceiling law has been exhausted. I think the government would have taken a much better position and even given freedom to Congress to discuss and identify various issues”, defends deputy Danilo Forte (União-CE).

Still in an effort to change taxation, Congress plans to move forward with one of President Luiz Inácio Lula da Silva’s campaign proposals, the amendment of the Income Tax. In Davos, Haddad stated that the government wants to vote on the correction of the IR table in the second half.

Author of a project that extends the IR exemption for those earning up to R$ 5,200, Forte defends that the proposal be incorporated into the tax reform.

“It makes no sense for those who earn R$ 1,900 a month to pay Income Tax. And those who earn ten salaries pay the same as Neymar pays. This is also wrong”, he criticized. “I want to include it in the proposal they send, instead of processing it separately. They [o governo] don’t want to start with the consumer? So we start with the consumer and discuss it there.”

A large part of the resistance that led the PT to press for voting on the project only this year is the possibility of loss of revenue in a scenario in which the government is betting on an economic package strongly based on measures to increase revenue. Estimates by economists indicate that the cost could exceed R$ 100 billion.

Another text that was left for this year after encountering obstacles at the end of last year is the one that updates the Simples ceiling. The project expands the ceiling for the gross income of the MEI (individual micro-entrepreneur) from R$ 81 thousand to R$ 144,913.41, applying an adjustment based on the IPCA (official inflation index) accumulated in 16 years (when the National Statute of Microenterprises and Small Enterprises).

It also changes other tracks. For micro-enterprises, the limit is increased from R$360,000 to R$869,500 per year. In the case of small companies, it goes from R$ 4.8 million to R$ 8.7 million. The Revenue calculated that the changes could cause an annual loss of BRL 66 billion for the public coffers.

To try to approve the proposal, Bertaiolli, rapporteur of the text in the CFT (Finance and Taxation Commission) of the Chamber, will suggest an escalation, updating the ceiling initially to R$ 6.4 million. The MDB, which, last year, barred the project for fear of loss of revenue for states and municipalities, has expressed that it can support the proposal.

Another theme that should gain momentum, according to parliamentarians, is the regulation of applications. Union centrals have been meeting with the Ministry of Labor to discuss points they consider important to be incorporated into the project, such as motorcycle insurance and access to social security. Still within the discussion of apps is the analysis of taxation of streaming platforms for displaying content, but this debate is still in its infancy.

In the transition, the government indicated that it was in favor of screen quotas for Brazilian productions, along the lines of what happens with TV and cinema, and the taxation of services.

Upon resumption of work, Congress will also consider a series of provisional measures sent by the government. Two of them —the one that changes the casting vote of the Carf (Administrative Council of Tax Appeals) in favor of the Revenue and the one that transfers the Coaf (Financial Activities Council) from the Central Bank to the Ministry of Finance— are seen as difficult to negotiate by parliamentarians.

The first because it changes an understanding that was decided by Congress itself in 2020, when it determined that the tiebreaker would be in favor of the taxpayer. In the case of Coaf, deputies and senators assess that, in the Central Bank, the body would be less subject to political interference.