Opinion: Reply: PEC 110 interests Brazil

The article “Tax Reform: simplifying or dual VAT?”, published on November 3 by João Diniz and Alberto Macedo, ends with the following question: “Who is PEC 110 interested in?” The answer to this question is very simple and straightforward. The PEC 110 interests Brazil: to all citizens, sectors and federative entities, without exceptions.

The new PEC 110 report presented by senator Roberto Rocha proposes the creation of a Dual-VAT system, which will replace the current consumption taxes (ICMS, ISS, PIS and Cofins) by just two: the federal CBS and the IBS dos states and municipalities.

The proposal will promote a broad reform and a true simplification in the taxation on consumption, putting an end to the numerous distortions that exist today: cumulativeness in the chain, tax war, unequal treatment between products and services and tax benefits to sectors. PEC 110 will considerably reduce tax litigation and bring more justice and transparency to the consumer of goods and services, who are the ones who effectively support the tax burden.

Therefore, the correct question to ask is: who is interested in maintaining the current tax system? And the answer to this question is also simple and straightforward: those who benefit most from this unfair and chaotic system are the only ones who defend the maintenance of the current taxation model.

For a start, it is not true that the service sector will be more burdened. Services today benefit from a significantly lower rate compared to those applied to goods and merchandise, which benefits the richest who consume more services, deepening the regressiveness of our system.

PEC 110 proposes to correct this historical distortion by proposing equal taxation for all goods and services through a VAT. In addition, services provided in the middle of the chain will generate credit, which means that there is a complete tax exemption for the productive sector. The ISS currently charged throughout the chain does not generate credit and is levied on a cumulative and cross basis, ending up being incorporated and increasing the final price of the products.

It should be noted that the vast majority of services to end consumers are provided by companies classified under Simples and this system will not change with PEC 110. There will also be no increase in complexity for service providers, as the IBS calculation will be simple and automatic. The argument that the service sector “has practically nothing to compensate” reveals a total ignorance of VAT.

Credit is the equivalent of the tax paid by companies on acquisitions in the middle of the chain: if the company has a lot of credit, it is because it paid a lot of VAT in the previous stages; if you have little credit, it means you paid less to pay VAT. Finally, the transition between the current system and the full implementation of the IBS was precisely proposed so that there is the possibility of adjustments in relative prices so that it is possible to transfer the rate in full to service borrowers.

It is also not true that there will be an increase in the tax burden on the Dual-VAT. The PEC text brings a lock obliging the IBS rate to be fixed so that the collection is exactly the same as the current taxes.

The article also talks about “federative disloyalty” of states towards municipalities. In fact, this does not seem to be the opinion of 93% of the municipalities that support PEC 110. Furthermore, such disloyalty seems to come from the large municipalities that, believing that their share of the tax pie is increasing, refuse to have a federative country view. To get an idea of ​​the distortion, only two capitals, representing 9% of the Brazilian population, concentrate 32% of ISS collection.

On the contrary, PEC 110 considers the situation of all federative entities, even proposing a longer and more gradual transition for the passage of income from origin to destination, making the revenue gains arising from the growth generated by the Reform avoid losses for the large municipalities.

The proposal formulated by the larger municipalities –Simplifica Já– is rejected by all other entities of the federation and proposes only a patch of current taxes, without altering the main problems of the system such as complexity, cumulativeness and lack of isonomy. Unlike the PEC 110 model, Simplifica Já will result in a relevant increase in the tax burden, mainly by providing for the migration of ICMS collection to the destination, which will cause the tax not collected in the state of origin due to tax benefits will be billed in the state of destination.

PEC 110 is of interest to Brazilians, it is of interest to the nation and not to specific entities or sectors such as the Simplifica Já proposal. the country has a growth consistent with its importance in the world.